Theory of the Growth of the Firm by Edith Penrose

Author:Edith Penrose [Penrose, Edith]
Language: eng
Format: epub
ISBN: 9780199573844
Publisher: Oxford University Press
Published: 0101-01-01T00:00:00+00:00

Personal Considerations and Special Situations

At all times there are firms ‘on the market’—firms whose owners want to sell out—where the initiative for merger comes from the seller.166One does not have to seek far to discover why this would always be so, even if one were to assume that costs and demand conditions were the same for all sizes of firm. There is nothing in the basic propositions of economics that asserts or implies that all men view the future with the same degree of optimism, or that the value of a given cash payment is the same to both parties to a transaction, or that the same income will call forth the same effort from all men and regardless of the time of life. On the contrary, it is well recognized that some men are more optimistic and more willing to take risks than others, in which case the expected net income from operating a given firm will be greater for the more optimistic and less discounted for the risk of not getting it. Or the worth of a present cash payment may be greater to the recipient than to the giver, the former placing a relatively lower value on future income.

In small firms where the owner and manager are one, the income from the firm may no longer be sufficient to call forth the effort required to run it—the owner may want to retire from business and there may be no adequate successor in his firm or family; or he may want to acquire cash or easily marketable securities to increase the liquidity of his estate in preparation for his final retirement from the world. In these and similar circumstances owners may be willing to take less than the capitalized value of the profits they could be expected to earn.167 In other cases a firm’s existing management may be simply inefficient and the firm doing badly for that reason. Here the profits anticipated by the firm’s present managers will be less than those anticipated by other and better managers appraising the value of the firm. Thus the very existence of firms that are not very successful or of firms owned by people who want to leave the business is in itself conducive to merger.168

In addition to this kind of personal element reducing the value of a firm to its existing owners are a variety of special institutional considerations. Of these, the role of taxation is particularly significant. Taxation may affect the decisions of businessmen with respect to the form in which income is best received or wealth best held; it may limit the extent to which firms can without penalty retain earnings; may in some circumstances put a penalty on the distribution of earnings; and may even convert the losses of some firms into assets for others who can acquire title to the right to deduct these losses from taxable income.

To illustrate, the closely held small firm may be sold to increase the liquidity of the owner’s estate and

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.