The chapter starts by formulating the standard problem in the theory of the firm: namely, to minimise combined capital and labour costs while producing a certain output. A general formulation of a constrained optimisation problem (with one constraint) is given and it is explained how to solve such problems by the method of Lagrange multipliers. This leads to a method to calculate the cost function of firms given their production functions and capital and labour unit costs. This enables us to derive the supply sets for efficient small firms with Cobb--Douglas production functions.

In Chapter 7, we open with a thorough discussion of “the theory of the firm,” followed by a conventional treatment of productivity and an introduction to costs. This chapter also has a lengthy discussion of expected applications (sunk costs, agency problems, insource/outsource), and a number of unusual but important applications (dedicated investments, franchising, tenure, and employee management).

In Chapter 6, I address how neoclassical economists have joined the search for a moral foundation for capitalism by discussing the lives and writings of Vernon Smith and Michael Jensen. I begin by discussing the victory of neoclassical economic theory over institutional economics. Max Weber and Frank Knight expressed deep concerns regarding the potential negative effects of neoclassical theory absent important social and moral norms, but their concerns went unheeded in the university-based business school. The victory of neoclassical economics over institutional economics altered the view of government regulation and business management in a way that severely reduced their value to capitalist society. Next, I discuss prominent neoclassical economists who have joined the search for a moral foundation for capitalism. I begin by discussing experimental economist Vernon Smith and his incorporation of Adam Smith’s moral theory to explain norm-based behavior emerging in the lab. I then discuss financial economist Michael Jensen and his incorporation of values and integrity into neoclassical theory after the crisis of capitalism brought on by the global market crash of 2007–08. This sets up a discussion of initial attempts to extend neoclassical economic theory and the continued resistance to such attempts.

Chapter 1 unpacks the traditional framework that shapes how scholars and policymakers think of corporate governance and its role in financial development and market growth. It reviews the main strands of literature that have nourished legal scholarship in the field of economic development law and development studies and the new institutional economics tradition. It describes how these strands connect with the main theories underlying scholarship on corporate governance and financial market development and explains that the literature highlight the importance of investor protection for the growth and development of markets.

The introductory chapter presents an overview of the book. It starts with the basic research questions and the objectives of the book. One of the main objectives is to make available systematic and comparable accounts of ownership structure change (respectively, persistence) in large firms in eight European countries over the last few decades. The second main objective is to examine the likely determinants of ownership structure change in each country. The third objective is to apply an international comparative approach to ownership structure changes to shed some light on the questions of whether similar forces impact ownership change or persistence in each country, whether particular institutional factors influence ownership change/persistence, and whether the eventual decline of corporate insiders and the state and the rise of foreign and institutional investors are influenced by similar forces in each country. The chapter provides an overview of the global corporate governance revolution in the 1990s as well as its countervailing forces. It discusses the theoretical assumptions about the determinants of corporate ownership, the data used in the country chapters, and gives an overview over chapter contents. The chapter concludes with cross-country summary, implications for the theory of the firm and policy implications.

Common ownership is the talk of the town in antitrust land. The competitive implications of rival firms being partially owned and controlled by a small set of overlapping owners are both fascinating and hotly contested. Could the source of potential harm be minority shareholder control in a setting of widely held companies? Critics question the extent and mechanisms of common owners’ influence driving any pro- or anticompetitive effects. This chapter aims to present a comprehensive account of partial ownership, capturing the incentives and effects of both individual and institutional investors and also cross- and common shareholding. It illustrates the early historical unity between corporate and competition laws in regulating shareholding acquisitions but also their progressive quiet disconnect. Triggered by the contemporary common ownership (hypo)thesis, it puts forward a taxonomy of shareholding types and their control characteristics from a competition law perspective, with emphasis on commonly thought passive and diversified investment holdings. The chapter concludes by urging competition and corporate governance and finance policymakers towards harmonic regulatory solutions to address common ownership. It also offers a quantum theory of the corporate property “atom”, drawing cautionary tales about the dynamic and ambiguous qualities of minority common shareholding for antitrust enforcers.

Using a communal approach that employs diverse feminist perspectives, co-authors Anne Choike, Martha Albertson Fineman, and Cheryl L. Wade argue that feminism offers corporate law a vitally important analytical tool to advance the creation of a more just legal framework governing corporations and their stakeholders. Choike, Fineman, and Wade highlight feminist corporate law literature that uses various feminist and feminist-inspired approaches to illuminate how using such perspectives can facilitate critical examination of corporate law concepts (including corporate personhood, limited liability, board diversity, firm ownership, and theories of the firm). Choike, Fineman and Wade argue that each type of feminism offers unique tools to analyze corporate law. Liberal feminism’s focus on gender identity, among other intersectional identity characteristics, reveals corporate law’s inequitable substance and operation. Relational feminism’s attention to gendered values and ethical frameworks highlights their impact upon the role and function of the corporation. Dominance feminism’s focus on power enables critique of implicitly gendered privileges that corporate law confers upon corporate actors. Feminism-inspired universal theories like vulnerability theory transcend gender to consider how institutional relationships in corporate law, such as principal/agent and worker/owner, may be unequal. Professional practitioners, scholars, and students can benefit from this chapter.

After four decades of learning by trial and error, the CCP has achieved total control over every aspect of society, including all resources, firms, and the population. This, along with its objective of “treating the entire nation as a chessboard” has propelled the CCP to run the country as a giant corporation. Living, working, and doing business in China is not a right, but a privilege granted by the party. To a great degree, state-owned firms are business units, state-related firms are subsidiaries, private firms are joint ventures, and foreign firms are franchisees of the party-state, with the party leader being the CEO of China, Inc. China, Inc. enjoys the agility of a business firm and the vast resources and capabilities of a state. The interplay between China and other countries is essentially a rivalry between a huge corporation and other countries. And the competition between a Chinese firm and a foreign firm can become a match between the Chinese state and the latter. This new perspective will help the international community reexamine global competition. It will also aid researchers to further explore this new phenomenon.

‘Shareholder democracy’ and ‘corporate purpose’ are concepts periodically cited in the context of dual-class stock.Shareholder democracy, and the contention that one share, one vote is democratic or just plain fair, although an elegant soundbite, has been disputed, with many commentators opining that one share per shareholder is a better representation of democracy, and that analogies between corporate governance and political theory are built on fragile grounds.In relation to corporate purpose, commentators have vacillated between ideologies of shareholder primacy and stakeholder pluralism over the years, with numerous ‘theories of the firm’ being proposed to justify, often opposing, ideals.However, the United Kingdom’s regulatory environment prioritises shareholders, the premium tier prohibition on dual-class stock stems from a presumption that it harms public shareholders and institutional shareholders, who are traditionally antagonistic to dual-class stock, enjoy significant influence on the UK public markets.Therefore, whatever one’s predilections on the shareholder primacy/stakeholder pluralism debate, when considering dual-class stock, the impact on public shareholders is key.Additionally, although Big Tech has attracted a hostile press in recent years, the potentially pernicious dominance of large tech companies is not an attribute unique to dual-class stock, and, in fact, dual-class stock could inspire greater competition in the industry.

This chapter sets out the first of two positive arguments for extending corporate voting rights to employees. The long-standing theory of the firm, in confronting the question why firms even exist, explains the separation of corporate insiders from outsiders in a way that allows firms to most efficiently carry out joint production. Those inside the corporation should have their preferences captured through more direct governance mechanisms such as voting, those outside the firm through processes like contract or regulation. Under this understanding of the firm, employees are, of course, the classic insiders, a conclusion that’s only reinforced by more recent work on the generation and flow of information within firms. The economic theory of the firm, then, provides a powerful argument for extending the corporate franchise to employees.

In the preface, we set the stage for the rest of the book. Corporations have a tremendous amount of power and play a major role in a number of contemporary issues, including income inequality, global warming, and the financial crisis. The principal theory of corporate governance – shareholder primacy – is well entrenched in law and practice, but its intellectual foundations are falling apart. Academic groups are split into different camps advocating for more or less shareholder empowerment. The traditional, law and economics arguments for the core governance feature – the exclusive shareholder franchise – have been revealed to rest on faulty assumptions and flawed reasoning. And both corporate governance theorists and corporate and economic luminaries are openly questioning the stability of shareholder primacy as a continuing regulatory norm. There are, however, a dearth of alternative approaches, so shareholder primacy lumbers on toward the point of crisis. It is time to assess where we are and offer a new way forward.