Organizational economics and the food processing industry
01 Jan 2004-
TL;DR: In this article, the authors examine the two prevalent organizational theories, Transaction Cost Economics and Agency Theory, through a study of the food processing industry and make predictions from each theory regarding the aspects of capital structure and firm expansion.
Abstract: OF THESIS ORGANIZATIONAL ECONOMICS AND THE FOOD PROCESSING INDUSTRY The food processing industry is dominated by large corporations. These firms play a critical role in forming the derived demand faced by agricultural producers, but little is understood about how these companies make strategic choices. Organizational economics provides a framework for exploring the firm’s decision process. However, several theories exist in this discipline, operating in fundamentally different ways. This paper examines the two prevalent organizational theories, Transaction Cost Economics and Agency Theory, through a study of the food processing industry. This sector is thoroughly analyzed in order to make predictions from each theory regarding the aspects of capital structure and firm expansion. With accounting data for a sample of food processing firms, these predictions are then tested empirically using an ICAPM model in a cross-section of expected stock returns. Our results indicate that Agency Theory is the relevant organizational model for food manufacturers, making it the appropriate tool for evaluating the actions of these firms in agricultural markets.
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01 Jan 1997
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24 citations
Posted Content•
TL;DR: In this article, the authors compare the economic organization of agriculture in the United States and the European Union and highlight the interaction between the institutional environment and the arrangements established to govern agricultural transactions.
Abstract: This paper outlines a research program comparing the economic organization of agriculture in the United States and European Union. Both have highly developed agricultural sectors but their organizational arrangements vary widely. Comparative analysis not only provides a broad set of firms and industries to compare, but also highlights the interaction between the institutional environment and the arrangements established to govern agricultural transactions. We first assess the common trend toward consolidation and vertical integration, turning next to the economic organization of formal and informal networks. While history and path dependence explain some of the variety among U.S. and European practices, other local conditions are important as well. We conclude by assessing the policy implications of recent changes in economic organization.
16 citations
References
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TL;DR: This article investigated the relationship between management ownership and market valuation of the firm, as measured by Tobin's Q. In a 1980 cross-section of 371 Fortune 500 firms, they found evidence of a significant nonmonotonic relationship.
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TL;DR: In this paper, the authors argue that the structure of corporate ownership varies systematically in ways that are consistent with value maximization, and they find no significant relationship between ownership concentration and accounting profit rates for a set of firms.
Abstract: This paper argues that the structure of corporate ownership varies systematically in ways that are consistent with value maximization. Among the variables that are empirically significant in explaining the variation in ownership structure for 511 U.S. corporations are firm size, instability of profit rate, whether or not the firm is a regulated utility or financial institution, and whether or not the firm is in the mass media or sports industry. Doubt is cast on the Berle-Means thesis, as no significant relationship is found between ownership concentration and accounting profit rates for this set of firms.
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Abstract: An intertemporal model for the capital market is deduced from the portfolio selection behavior by an arbitrary number of investors who aot so as to maximize the expected utility of lifetime consumption and who can trade continuously in time. Explicit demand functions for assets are derived, and it is shown that, unlike the one-period model, current demands are affected by the possibility of uncertain changes in future investment opportunities. After aggregating demands and requiring market clearing, the equilibrium relationships among expected returns are derived, and contrary to the classical capital asset pricing model, expected returns on risky assets may differ from the riskless rate even when they have no systematic or market risk. ONE OF THE MORE important developments in modern capital market theory is the Sharpe-Lintner-Mossin mean-variance equilibrium model of exchange, commonly called the capital asset pricing model.2 Although the model has been the basis for more than one hundred academic papers and has had significant impact on the non-academic financial community,' it is still subject to theoretical and empirical criticism. Because the model assumes that investors choose their portfolios according to the Markowitz [21] mean-variance criterion, it is subject to all the theoretical objections to this criterion, of which there are many.4 It has also been criticized for the additional assumptions required,5 especially homogeneous expectations and the single-period nature of the model. The proponents of the model who agree with the theoretical objections, but who argue that the capital market operates "as if" these assumptions were satisfied, are themselves not beyond criticism. While the model predicts that the expected excess return from holding an asset is proportional to the covariance of its return with the market
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TL;DR: In this paper, the explanatory power of some of the recent theories of optimal capital structure is analyzed empirically and a factor-analytic technique is used to mitigate the measurement problems encountered when working with proxy variables.
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TL;DR: In this paper, the potential of post-contractural apportunistic behavior for improving market efficiency through intra-firm rather than interfirm transactions is examined under the assumption that vertical costs will increase less than contracting costs as specialized assets and appropriable quasi rents increase.
Abstract: The potential of post-contractural apportunistic behavior for improving market efficiency through intrafirm rather than interfirm transactions is examined under the assumption that vertical costs will increase less than contracting costs as specialized assets and appropriable quasi rents increase. Vertical integration protects against the risk of contract cancellation and can create market power which is not generally referred to as monopoly. Contracts used as a alternative provide economically enforceable protection against opportunistic behavior. Solutions to opportunistic behavior problems can include joint ownership of common assets and condominium ownership of services. Economies of scale are major factors in some businesses, such as insurance. The complexities of ownership relations makes it difficult to assign higher costs to either the contract or vertical-integration approach. This suggests that economic analysis should be used to identify which is most advantageous for specific kinds of activities.
5,728 citations
"Organizational economics and the fo..." refers background in this paper
...Yet, in any economic sector contracts and non-contract incentives will ultimately fail at times, allowing for ex-post opportunism, or the appropriation of quasi rents (Klein et al. 1998, 298)....
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