A Test of the Validity of the Theory of the Firm

International Journal of Applied Institutional Governance (ISSN: 1747-6259) Volume 1 Issue 2

Kenny Crossan
AIBS, Anglia Polytechnic University , Cambridge , UK


This paper examines the theory of the firm and alternative theories of firm behaviour. A probit model is estimated using data collected from a postal questionnaire combined with firm and industry specific data generated from the FAME database. The results indicate that firm size, ownership and concentration ratio do not have a significant effect on the likely-hood of a manager or owner of a firm choosing to profit maximise. The paper offers support for profit maximization as a business objective. However, no support is offered for managerial and behavioural theories of the firm.

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