The Theory of Corporate Governance: A Transaction Cost Economics - Firm Lifecycle Approach

This paper presents a theoretical model of corporate governance which is based on insights from both Transaction Cost Economics and the Lifecycle Theory of the firm. The model is built with the purpose of investigating whether corporate governance affects firm performance in the context of U.S. institutions. The theoretical model describes how corporate governance develops through the various stages of the lifecycle of the firm. The model predicts that the managements of financially autonomous firms who are also entrenched will tend to over-invest and that as a consequence their firms will have comparative low valuations.