Sizes and types of firms
Syllabus
Candidates should be able to:
 Explain why firms grow and why some firms remain
small
 Explain the significance of the divorce of ownership
from control: the principal-agent problem
 Distinguish between public and private sector
organisations
 Distinguish between profit and not-for-profit
organisations
Reasons for growth
Why might a firm want to grow?
Why might a firm not want to grow?
How can the size of a firm be measured?
Which are the biggest firms in the world?
Which are the biggest firms in the UK?
What are the advantages of a firm remaining small?
What are the advantages of a firm growing/being large?
What is the best size for a firm?
What is the significance of the divorce of ownership from control:
the principal-agent problem?
• Divorce of ownership and control refers to any
company (usually a plc) where the owners
(______________) differ from the managers and
hence have different ____________.
• FTSE 100 companies have this issue. The board of
directors of these firms represent the _____________
but the Chief Executive and senior managers control
the day-to-day ______________.
• The principal agent problem occurs when the goals
of principals (those standing to gain or lose from a
decision) are different from agents (those __________
decisions on behalf of the principal).
Quiz: the principal-agent problem:
•
•
•
•
Principal or agent?
Parents and children?
Parents =
Children =
• Shareholders and managers?
• Shareholders =
• Managers =
What is the distinction between public and private sector
organisations?
What is the distinction between profit and not-for-profit
organisations?