Discussion Paper Details

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Title: Organizational Prospects, Influence Costs, and Ownership Changes

Author(s): Margaret A Meyer, Paul Milgrom and Donald John Roberts

Publication Date: June 1992

Keyword(s): Acquisitions and Mergers, Divestitures, Firm Boundaries, Influence Costs, Ownership and Politics

Programme Area(s): Applied Macroeconomics

Abstract: We augment efficiency-based theories of ownership by including influence costs. Our principal conclusion is that the prospect of organizational decline and layoffs creates additional influence costs in multi-unit organizations that would be absent if there were no prospect of layoffs and would be lessened or eliminated in focused organizations. This helps explain the tendency of firms to divest poorly performing units, as well as the pattern of sales of such units to firms already in businesses related to that of the divested unit.

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Bibliographic Reference

Meyer, M, Milgrom, P and Roberts, D. 1992. 'Organizational Prospects, Influence Costs, and Ownership Changes'. London, Centre for Economic Policy Research.