Support Mises
Quarterly Journal of Austrian Economics

Do Entrepreneurs Make Predictable Mistakes? Evidence from Corporate Divestitures

The Quarterly Journal of Austrian Economics
Tags: Entrepreneurship, The Entrepreneur
Quarterly Journal of Austrian Economics Peter G. Klein
Print this page
Downloads
 

Volume 4, No. 2 (Summer 2001)

 Do entrepreneurs make predictable mistakes? Theory and evidence suggest otherwise. Contrary to the conventional wisdom on mergers and sell-offs, divestitures of previously acquired assets do not necessarily indicate that the original acquisitions were mistakes. Indeed, empire-building motives do not seem to be systematically related to long-term merger performance. Instead, divestitures are more likely to be associated with experimentation, learning, and other socially beneficial activities.Acquisitions are uncertain endeavors, and the entrepreneur–promoter—along with the manager to whom he delegates authority—is a speculator. If the consequences of his actions were determinate, he would not be an entrepreneur, but rather, as some economic theories seem to treat him, “a soulless automaton.”  However, the future can never be known with certainty; long-term profit and loss cannot be predicted based on current information.  The relevant question for policy is whether there is a feasible alternative to market-based corporate governance.  Our reading of the political-economy literature leaves us doubtful that such an alternative exists.

CITE THIS ARTICLE

Klein, Peter G.and Klein, Sandra K. “Do entrepreneurs make profitable mistakes? Evidence from Corporate Divestitures.” The Quarterly Journal of Austrian Economics 4, No. 2 (Summer 2001): 3-23.

All Rights Reserved ©
What is the Mises Institute?

The Mises Institute is a non-profit organization that exists to promote teaching and research in the Austrian School of economics, individual freedom, honest history, and international peace, in the tradition of Ludwig von Mises and Murray N. Rothbard. 

Non-political, non-partisan, and non-PC, we advocate a radical shift in the intellectual climate, away from statism and toward a private property order. We believe that our foundational ideas are of permanent value, and oppose all efforts at compromise, sellout, and amalgamation of these ideas with fashionable political, cultural, and social doctrines inimical to their spirit.

Become a Member
Mises Institute