A wider extension of employee-managed firms in Western marketa economies is assumed to be limited by three financially related internal obstacles. Employees are: relatively poor, risk-averse and opportunistic. Thus a wider extension implies outside financing (some combination of outside equity and debt). But asymmetric information and opportunism in relation to outside financing lead to agency problems. It is concluded that a wider extension especially to capital-intensive industries implies the building up of separate financial institutions to supply outside financing, some risk-taking by employees to restore incentives and some violation of the employeemanaged firms' autonomy to protect outside financing against default.
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