Organizational Prospects, Influence Costs, and Ownership Changes


Margaret A. Meyer 

Nuffield College, Oxford University


Paul Milgrom 

Stanford University


John Roberts

Graduate School of Business, Stanford University



Journal of Economics & Management Strategy, (1992), 1, (1), pp.9-35.
We augment efficiency-based theories of ownership by including influence costs. Our principal conclusion is that the prospect of organizational decline and layoffs creates additional influence costs in multiunit organizations that would be absent if there was no prospect of layoffs and would be lessened or eliminated in focused organizations. This helps explain the tendency of firms to divest poorly performing units, as well as the pattern of sales of such units to firms already in businesses related to that of the divested unit.