Market distortions and corporate governance.

Paper number: 05/03

Paper date: 1st December 2004

Year: 2005

Paper Category: Working Paper

Authors

David Kelsey and Frank Milne

Abstract

This paper studies corporate governance when a firm operates in imperfect markets. We derive firms' decisions from utility maximisation by individuals. This reduces the usual monopoly distortion. Corporate governance can effect the equilibrium in the product (or input) markets. This enables us to endogenise the objective function of the firm. If the firm cannot commit not to change its constitution, we find a Coase-like result where all market power is lost in the limit. We present a more abstract model of governance in the presence of market distortions and discuss its implications for the governance of universities.

Market distortions and corporate governance. Market distortions and corporate governance.