According to theory, the importance of banks stems in large part from their ability to monitor and lend to firms the market will not touch. They find that banks in the United States appear to fear involvement in management because of concerns about equitable subordination and lender liability. As a result, they tend to be represented primarily on the boards of large, stable firms with tangible assets and little reliance on short-term debt. Thus, at least in the United States, bankers are not represented on the boards of firms that require the most monitoring. Our members also have been trying to develop a better understanding of the boundaries of the corporation.
Corporate owners have the ultimate authority, but limited time to exercise it, so they delegate.
Hart and Moore have some results already on the optimal degree of decentralization and the boundaries of the firm. We find that industries that use a lot of physical capital have larger firms, as do countries with greater judicial efficiency. Ownership Structures Corporate ownership has always been an important subject of research for our group. Managerial ownership rises from 13 percent for the universe of exchange-listed corporations in 1935, the earliest year for which such data exist, to 21 percent in 1995. This work recently won the first Brattle Prize for the best paper on corporate finance published by the Journal of Finance .