DP665 Organizational Prospects, Influence Costs, and Ownership Changes
|Author(s):||Margaret A Meyer, Paul Milgrom, Donald John Roberts|
|Publication Date:||June 1992|
|Keyword(s):||Acquisitions and Mergers, Divestitures, Firm Boundaries, Influence Costs, Ownership, Politics|
|JEL(s):||D21, D23, G34, L22|
|Programme Areas:||Applied Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=665|
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.