Entrepreneurship and corporate governance

  • Peter G. Klein


The main message of this article is that Austrians can continue to work within the contractual, or Coasian, approach to the firm in elaborating the insights discussed above. In particular, the problem of corporate governance, and the corollary view that firms are investments, belongs at the forefront of Austrian research on the theory of the firm. Emphasis should thus be placed on the plans and actions of the capitalist-entrepreneur.

A particularly undeveloped area concerns the provision of capital to small, “entrepreneurial” ventures. Most of the literature on governance focuses on the large corporation, and the use of stock and bond markets to govern these organizations. Equally important, however, are smaller, privately held firms, financed with venture capital or other forms of investment. So far, the firm-as-investment literature has said little about these organizations, despite their growing importance, particularly in high-growth, technologically-advanced industries like software and biotechnology. Further research in this area is sorely needed.


Corporate Governance Capital Market Venture Capital AUSTRIAN Economic Financial Capital 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Alchian, Armen A., and Harold Demsetz. 1972. “Production, Information Costs, and Economic Organization.” American Economic Review 62:777–95.Google Scholar
  2. Andrade, Gregor, and Erik Stafford. 1997. “Investigating the Characteristics and Determinants of Mergers and Other Forms of Investment.” Graduate School of Business, University of Chicago. Working Paper.Google Scholar
  3. Arrow, Kenneth J. 1974. The Limits of Organization. New York: W. W. Norton.Google Scholar
  4. Berle, Adolph A., and Gardiner C. Means. 1932. The Modern Corporation and Private Property. New York: Macmillan.Google Scholar
  5. Bhide, Amar. 1990. “Reversing Corporate Diversification.” Journal of Applied Corporate Finance 3:70–81.CrossRefGoogle Scholar
  6. Bittlingmayer, George. 1996. “Merger as a Form of Investment.” Kyklos 49(2): 127–53.CrossRefGoogle Scholar
  7. Boudreaux, Donald J., and Randall G. Holcombe. 1989. “The Coasian and Knightian Theories of the Firm.” Managerial and Decision Economics 10:147–54.CrossRefGoogle Scholar
  8. Byrne, John A. 1993. The Whiz Kids: Ten Founding Fathers of American Business-and the Legacy They Left Us. New York: Doubleday.Google Scholar
  9. Chandler, Alfred D., Jr. 1977. The Visible Hand: The Managerial Revolution in American Business. Cambridge, Mass.: Harvard University Press.Google Scholar
  10. Coase, Ronald H. 1937. “The Nature of the Firm.” In idem., The Firm, the Market, and the Law. Chicago: University of Chicago Press. Pp. 33–55.Google Scholar
  11. Eatwell, John, Murray Milgate, and Peter Newman, eds. 1998. The New Palgrave Dictionary of Law and Economics. London: Macmillan.Google Scholar
  12. Eccles, Robert, and Harrison White. 1988. “Price and Authority in Inter-Profit Center Transactions.” American Journal of Sociology 94: supplement, S17-S48.Google Scholar
  13. Ericson, Richard E. 1991. “The Classical Soviet-Type Economy: Nature of the System and Implications for Reform.” Journal of Economic Perspectives 5(4): 11–27.Google Scholar
  14. Fama, Eugene F. 1980. “Agency Problems and the Theory of the Firm.” Journal of Political Economy 88:288–307.CrossRefGoogle Scholar
  15. Fama, Eugene F., and Michael C. Jensen. 1983. “Separation of Ownership and Control.” Journal of Law and Economics 26:301–26.CrossRefGoogle Scholar
  16. Foss, Nicolai Juul. 1993a. “The Two Coasian Traditions.” Review of Political Economy 4:508–32. 1993b. “More on Knight and the Theory of the Firm.” Managerial and Decision Economics 14:269–76.Google Scholar
  17. Foss, Kirsten, and Nicolai J. Foss. 1998. “The Knowledge-Based Approach: Some Organizational Economics Foundations.” Department of Industrial Economics and Strategy. Copenhagen Business School. Working Paper.Google Scholar
  18. Furubotn, Eirik G., and Rudolf Richter. 1997. Institutions and Economic Theory: The Contribution of the New Institutional Economics. Ann Arbor: University of Michigan Press.Google Scholar
  19. Gabor, André. 1984. “On the Theory and Practice of Transfer Pricing.” In A. Ingham and A.M. Ulph, eds. Demand, Equilibrium, and Trade: Essays in Honor of Ivor F. Pearce. New York: St. Martin’s Press. Pp. 149–70.Google Scholar
  20. Gabor, André, and Ivor F. Pearce. 1952. “A New Approach to the Theory of the Firm.” Oxford Economic Papers 4:252–65.Google Scholar
  21. —————. 1958. “The Place of Money Capital in the Theory of Production.” Quarterly Journal of Economics 72:537–57.CrossRefGoogle Scholar
  22. Gertner, Robert H., David S. Scharfstein, and Jeremy C. Stein. 1994. “Internal Versus External Capital Markets.” Quarterly Journal of Economics 109:1211–30.CrossRefGoogle Scholar
  23. Gilson, Ronald J. 1995. “Corporate Governance and Economic Efficiency: When Do Institutions Matter?” John M. Olin Program in Law and Economics, Stanford Law School. Working Paper no. 121.Google Scholar
  24. Gilson, Ronald J., and Bernard S. Black. 1997. “Venture Capital and the Structure of Capital Markets: Banks Versus Stock Markets.” Columbia Law School. Working Paper.Google Scholar
  25. Goldberg, Victor. 1980. “Relational Exchange: Economics and Complex Contracts.” American Behavioral Scientist 23:337–52.CrossRefGoogle Scholar
  26. Grossman, Sanford J., and Oliver D. Hart. 1986. “The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration.” Journal of Political Economy 94(4): 691–719.CrossRefGoogle Scholar
  27. Hart, Oliver D., and John Moore. 1990. “Property Rights and the Nature of the Firm.” Journal of Political Economy 98:1119–58.CrossRefGoogle Scholar
  28. Hayek, F.A. 1945. “The Use of Knowledge in Society.” In idem., Individualism and Economic Order. London: Routledge and Kegan Paul. Pp. 77–91.Google Scholar
  29. Heide, J. B., and G. John. 1988. “The Role of Dependence Balancing in Safeguarding Transaction-Specific Assets.” Journal of Marketing 52:20–35.CrossRefGoogle Scholar
  30. Holmström, Bengt R., and Jean Tirole. 1989. “The Theory of the Firm.” In Richard Schmalensee and Robert D. Willig, eds. Handbook of Industrial Organization. Vol. 1. Amsterdam: North-Holland. Pp. 61–133.Google Scholar
  31. Hubbard, R. Glenn, and Darius A. Palia. 1999. “A Reexamination of the Conglomerate Merger Wave in the 1960s: An Internal Capital Markets View.” Journal of Finance 54(23): 1131–52.CrossRefGoogle Scholar
  32. Jensen, Michael C. 1986. “Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers.” American Economic Review 76 (May): 323–29.Google Scholar
  33. —————. 1993. “The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems.” Journal of Finance 48(3): 831–80.CrossRefGoogle Scholar
  34. Jensen, Michael C., and William Meckling. 1976. “Theory of the Firm: Managerial Behavior, Agency Costs, and Capital Structure.” Journal of Financial Economics 3:305–60.CrossRefGoogle Scholar
  35. Joskow, Paul L. 1985. “Vertical Integration and Long-Term Contracts: The Case of Coal-Burning Electric Generating Plants.” Journal of Law, Economics and Organization 1:33–80.Google Scholar
  36. —————. 1987. “Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets.” American Economic Review 77:168–185.Google Scholar
  37. —————. 1988. “Price Adjustment in Long-Term Contracts: The Case of Coal.” Journal of Law and Economics 31:47–83.CrossRefGoogle Scholar
  38. —————. 1990. “The Performance of Long-Term Contracts: Further Evidence from the Coal Markets.” Rand Journal of Economics 21:251–74.CrossRefGoogle Scholar
  39. King, Elizabeth A. 1994. Transfer Pricing and Valuation in Corporate Taxation: Federal Legislation vs. Administrative Practice. Boston: Kluwer Academic Publishers.Google Scholar
  40. Kirzner, Israel M. 1973. Competition and Entrepreneurship. Chicago: University of Chicago Press.Google Scholar
  41. —————. 1979. Perception, Opportunity, and Profit. Chicago: University of Chicago Press.Google Scholar
  42. —————. 1992. The Meaning of Market Process. London: Routledge.Google Scholar
  43. —————. 1996. “Reflections on the Misesian Legacy in Economics.” Review of Austrian Economics 9(2): 143–54.CrossRefGoogle Scholar
  44. —————. 1997. “Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach.” Journal of Economic Literature 35:60–85.Google Scholar
  45. Klein, Benjamin, Robert A. Crawford, and Armen A. Alchian. 1978. “Vertical Integration, Appropriable Rents, and the Competitive Contracting Process.” Journal of Law and Economics 21:297–326.CrossRefGoogle Scholar
  46. Klein, Peter G. 1996. “Economic Calculation and the Limits of Organization.” Review of Austrian Economics 9(2): 3–28.CrossRefGoogle Scholar
  47. —————. 1998a. “New Institutional Economics.” Forthcoming in Boudewin Bouckeart and Gerrit De Geest, eds. Encyclopedia of Law and Economics. Cheltenham, U.K.: Edward Elgar.Google Scholar
  48. -----. 1998b. “Were the Acquisitive Conglomerates Inefficient? A Reconsideration.” Department of Economics. University of Georgia. Working Paper.Google Scholar
  49. Knight, Frank H. 1921. Risk, Uncertainty, and Profit. New York: Hart, Schaffner and Marx.Google Scholar
  50. Kreps, David M. 1990. “Corporate Culture and Economic Theory.” In James E. Alt and Kenneth A. Shepsle, eds. Perspectives on Positive Political Economy. New York: Cambridge University Press. Pp. 90–143.Google Scholar
  51. Langlois, Richard N. 1994. “The Boundaries of the Firm.” In Peter J. Boettke, ed. The Elgar Companion to Austrian Economics. Cheltenham, U.K.: Edward Elgar. Pp. 173–78.Google Scholar
  52. Langlois, Richard N., and Paul L. Robertson. 1995. Firms, Markets, and Economic Change: A Dynamic Theory of Business Institutions. London and New York: Routledge.Google Scholar
  53. Lucas, Robert E., Jr. 1972. “Expectations and the Neutrality of Money.” Journal of Economic Theory 4:103–24.CrossRefGoogle Scholar
  54. Manne, Henry G. 1965. “Mergers and the Market for Corporate Control.” Journal of Political Economy 73 (April): 110–20.CrossRefGoogle Scholar
  55. Menger, Carl. [1871] 1981. Principles of Economics. Trans. James Dingwall and Burt F. Hoselitz. New York: New York University Press.Google Scholar
  56. Milhaupt, Curtis J. 1997. “The Market for Innovation in the United States and Japan: Venture Capital and the Comparative Corporate Governance Debate.” Northwestern University Law Review 91(3): 865–98.Google Scholar
  57. Mises, Ludwig von. 1944. Bureaucracy. New Haven, Conn.: Yale University Press.Google Scholar
  58. —————. 1949. Human Action: A Treatise on Economics. 3rd Rev. Ed. New York: Regnery.Google Scholar
  59. —————. [1951] 1980. “Profit and Loss.” In idem.. 4th Ed. Spring Mills, Penn.: Libertarian Press. Pp. 108–50.Google Scholar
  60. Mitchell, Mark, and J. Harold Mulherin. 1996. “The Impact of Industry Shocks on Takeover and Restructuring Activity.” Journal of Financial Economics 41 (June): 193–229.CrossRefGoogle Scholar
  61. Montias, J. Michael. 1976. The Structure of Economic Systems. New Haven, Conn.: Yale University Press.Google Scholar
  62. Moroney, J.R. 1972. “The Current State of Money and Production Theory.” American Economic Review, Papers and Proceedings (May): 335–43.Google Scholar
  63. Myers, Stewart C., and Nicholas S. Majluf. 1984. “Corporate Financing and Investment Decisions When Firms Have Information That Investors Do Not Have.” Journal of Financial Economics 13 (June): 187–221.CrossRefGoogle Scholar
  64. O’Driscoll, Gerald P., and Mario J. Rizzo. 1985. The Economics of Time and Ignorance. London: Basil Blackwell.Google Scholar
  65. Pisano, Gary P. 1990. “Using Equity Participation to Support Exchange: Evidence from the Biotechnology Industry.” Journal of Law, Economics and Organization 5:109–26.Google Scholar
  66. Pisano, Gary P., Michael V. Russo, and David J. Teece. 1988. “Joint Ventures and Collaborative Arrangements in the Telecommunications Equipment Industry.” In David Mowery, ed. International Collaborative Ventures in U.S. Manufacturing. Cambridge, Mass.: Ballinger. Pp. 23–70.Google Scholar
  67. Ravenscraft, David, and F. M. Scherer. 1987. Mergers, Self-Offs, and Economic Efficiency. Washington, D.C.: Brookings Institution.Google Scholar
  68. Reece, J.S., and W.R. Cool. 1978. “Measuring Investment Center Performance.” Harvard Business Review 56 (May–June): 28–30.Google Scholar
  69. Roe, Mark J. 1994. Strong Managers, Weak Owners: The Political Roots of American Corporate Finance. Princeton: Princeton University Press.Google Scholar
  70. -----. 1998. “Comparative Corporate Governance.” In Eatwell, et al. (1998).Google Scholar
  71. Rogerson, William P. 1992. Overhead Allocation and Incentives for Cost Minimization in Defense Procurement. Santa Monica, Calif.: Rand Corporation.Google Scholar
  72. Romano, Roberta. 1992. “A Guide to Takeovers: Theory, Evidence, and Regulation.” Yale Journal on Regulation 9:119–80.Google Scholar
  73. Rothbard, Murray N. [1962] 1993. Man, Economy, and State: A Treatise on Economic Principles. Auburn, Ala.: Ludwig von Mises Institute.Google Scholar
  74. —————. 1976. “Ludwig von Mises and Econ omic Calculation Under Socialism.” In Laurence S. Moss, ed. The Economics of Ludwig von Mises: Toward a Critical Reappraisal. Kansas City: Sheed and Ward. Pp. 67–77.Google Scholar
  75. —————. 1985. “Professor Hébert on Entrepreneurship.” Journal of Libertarian Studies 7(2): 281–86.Google Scholar
  76. —————. 1991. “The End of Socialism and the Calculation Debate Revisited.” Review of Austrian Economics 5(2): 51–76.CrossRefGoogle Scholar
  77. Salerno, Joseph T. 1993. “Mises and Hayek Dehomogenized.” Review of Austrian Economics 6(2): 113–46.CrossRefGoogle Scholar
  78. —————. 1999. “Carl Menger.” Forthcoming in Randall G. Holcombe, ed., Fifteen Great Austrian Economists. Auburn, Ala.: Ludwig von Mises Institute.Google Scholar
  79. Scharfstein, David. 1988. “The Disciplinary Role of Takeovers.” Review of Economic Studies 55 (April): 185–99.CrossRefGoogle Scholar
  80. Shapley, Deborah. 1993. Promise and Power: The Life and Times of Robert McNamara. Boston: Little, Brown and Company.Google Scholar
  81. Shleifer, Andrei, and Robert W. Vishny. 1997. “A Survey of Corporate Governance.” Journal of Finance 52(2): 737–83.CrossRefGoogle Scholar
  82. Simon, Herbert A. 1961. Administrative Behavior. 2nd Ed. New York: Macmillan.Google Scholar
  83. Staubus, George J. 1986. “The Market Simulation Theory of Accounting Measurement.” Accounting and Business Research 16(62): 117–32.Google Scholar
  84. Stein, Jeremy C. 1997. “Internal Capital Markets and the Competition for Corporate Resources.” Journal of Finance 52(1): 111–33.CrossRefGoogle Scholar
  85. Stern, Joel M., G. Bennett Stewart III, and Donald H. Chew, Jr. 1995. “The EVA Financial Management System.” Journal of Applied Corporate Finance 8(2): 32–46.CrossRefGoogle Scholar
  86. Vickers, Douglas. 1970. “The Cost of Capital and the Structure of the Firm.” Journal of Finance 25:1061–80.CrossRefGoogle Scholar
  87. —————. 1987. Money Capital in the Theory of the Firm: A Preliminary Analysis. Cambridge: Cambridge University Press.Google Scholar
  88. Williamson, Oliver E. 1975. Markets and Hierarchies: Analysis and Antitrust Implications. New York: Free Press.Google Scholar
  89. —————. 1981. “The Modern Corporation: Origins, Evolution, Attributes.” Journal of Economic Literature 19:1537–68.Google Scholar
  90. —————. 1985. The Economic Institutions of Capitalism. New York: Free Press.Google Scholar
  91. —————. 1991. “Economic Institutions: Spontaneous and Interntional Governance.” Journal of Law, Economics and Organization 7:159–87.Google Scholar
  92. —————. 1992. “Markets, Hierarchies, and the Modern Corporation: An Unfolding Perspective.” Journal of Economic Behavior and Organization 17 (May): 335–52.CrossRefGoogle Scholar
  93. —————. 1996. The Mechanisms of Governance. New York: Oxford University Press.Google Scholar
  94. Witt, Ulrich. 1998a. “Imagination and Leadership—The Neglected Dimension of an Evolutionary Theory of the Firm.” Journal of Economic Behavior and Organization 35:161–77.CrossRefGoogle Scholar
  95. -----. 1998b. “Do Entrepreneurs Need Firms?” Review of Austrian Economics 11(1–2).Google Scholar
  96. Yu, Tony Fu-Lai. 1998. “Toward a Praxeological Theory of the Firm.” Mimeograph copy. School of Economics and Management University College, University of New South Wales.Google Scholar
  97. Zingales, Luigi. 1998. “Corporate Governance.” In Eatwell, et al. (1998).Google Scholar

Copyright information

© Springer 1999

Authors and Affiliations

  • Peter G. Klein
    • 1
  1. 1.the University of GeorgiaUSA

Personalised recommendations