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Predatory Value ExtractionHow the Looting of the Business Corporation Became the US Norm and How Sustainable Prosperity Can Be Restored$
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William Lazonick and Jang-Sup Shin

Print publication date: 2019

Print ISBN-13: 9780198846772

Published to Oxford Scholarship Online: January 2020

DOI: 10.1093/oso/9780198846772.001.0001

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Innovative Enterprise Solves the Agency Problem

Innovative Enterprise Solves the Agency Problem

(p.156) 7 Innovative Enterprise Solves the Agency Problem
Predatory Value Extraction

William Lazonick

Jang-Sup Shin

Oxford University Press

This chapter uses innovation theory to provide both a general theoretical critique and a selective empirical critique of the use of agency theory to rationalize the looting of the U.S. business corporation as enhancing economic efficiency. It focuses on three empirical works, Bebchuk and Fried, Pay Without Performance (2004); Bebchuk, Brav, and Jiang, “The Long-Term Effects of Hedge-Fund Activism” (2015); and Fried and Wang, “Short-Termism and Capital Flows” (2017). The chapter contends that MSV ideology as promulgated by agency theorists has contributed to inferior corporate and economic performance. It then argues that, for analyzing the operation and performance of the economy, innovation theory should replace agency theory.

Keywords:   Agency theory, corporate performance, innovation theory, Lucian Bebchuk, executive pay, hedge-fund activism

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