Final answer:
The separation of ownership and management in large corporations, such as public companies, presents both challenges and opportunities, including potential goal misalignment, corporate governance issues, and efficient capital raising.
Step-by-step explanation:
In most large corporations, the separation of ownership and management has significant implications. Private companies are typically owned and managed by the same individuals, known as a sole proprietorship or partnership. However, when a company becomes public, it sells stock to financial investors, and the firm is then owned by shareholders. The shareholders elect a board of directors to oversee the company and hire management for day-to-day operations, which is an example of corporate governance. This system creates a separation between those that own the company (shareholders) and those that manage it.
The main implications of this separation include a potential disconnection in objectives between management and shareholders, issues in monitoring and controlling management decisions, and complexities in corporate governance due to the dispersal of ownership. However, managerial expertise can be brought in to run the company's operations, which might not always be possible in smaller, owner-managed firms. This structure also allows for raising capital more efficiently through the stock market, which can fuel growth and innovation.