Optimal governance structures minimize costs and empower shareholders effectively.
The article discusses how firms can minimize costs by balancing control between shareholders and managers. It introduces principal-cost theory, which suggests that firms choose governance structures based on minimizing costs from both shareholders and managers. The theory shows that different firms may empower shareholders to varying degrees to optimize their control. This approach leads to more accurate predictions and suggests that firms should be allowed to customize their governance structures based on their specific needs.
