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Why stakeholder and stockholder theories are not necessarily contradictory: A knightian insight

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Author Info

  • Velamuri, Rama

    ()
    (IESE Business School)

  • Venkataraman, Sankaran

    (Darden Graduate School of Business Administration)

Abstract

The normative foundations of the investor centered model of corporate governance, represented in mainstream economics by the nexus-of-contracts view of the firm, have come under attack, mainly by proponents of normative stakeholder theory. We argue that the nexus-of-contracts view is static and limited due to its assumption of price-output certainty. We attempt a synthesis of the nexus-of-contracts and the Knightian views, which provides novel insights into the normative adequacy of the investor-centered firm. Implications for scholarship and management practice follow from our discussion.

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Bibliographic Info

Paper provided by IESE Business School in its series IESE Research Papers with number D/591.

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Length: 19 pages
Date of creation: 30 May 2005
Date of revision:
Handle: RePEc:ebg:iesewp:d-0591

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Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
Web page: http://www.iese.edu/
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Related research

Keywords: Theory of the firm; corporate governance; entrepreneurship; business ethics; stakeholder theory;

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References

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  1. Andrei Shleifer & Robert W. Vishny, 1995. "A Survey of Corporate Governance," Harvard Institute of Economic Research Working Papers 1741, Harvard - Institute of Economic Research.
  2. Dew, Nicholas & Velamuri, S. Ramakrishna & Venkataraman, Sankaran, 2004. "Dispersed knowledge and an entrepreneurial theory of the firm," Journal of Business Venturing, Elsevier, vol. 19(5), pages 659-679, September.
  3. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
  4. Edward Freeman, R. & Evan, William M., 1990. "Corporate governance: A stakeholder interpretation," Journal of Behavioral Economics, Elsevier, vol. 19(4), pages 337-359.
  5. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  6. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  7. LeRoy, Stephen F & Singell, Larry D, Jr, 1987. "Knight on Risk and Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 394-406, April.
  8. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
  9. Armen A. Alchian & Harold Demsetz, 1971. "Production, Information Costs and Economic Organizations," UCLA Economics Working Papers 10A, UCLA Department of Economics.
  10. Arrow, Kenneth J, 1974. "Limited Knowledge and Economic Analysis," American Economic Review, American Economic Association, vol. 64(1), pages 1-10, March.
  11. Demsetz, Harold, 1983. "The Structure of Ownership and the Theory of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 375-90, June.
  12. Langlois, Richard N & Cosgel, Metin M, 1993. "Frank Knight on Risk, Uncertainty, and the Firm: A New Interpretation," Economic Inquiry, Western Economic Association International, vol. 31(3), pages 456-65, July.
  13. Boatright, John R., 2002. "Contractors as stakeholders: Reconciling stakeholder theory with the nexus-of-contracts firm," Journal of Banking & Finance, Elsevier, vol. 26(9), pages 1837-1852, September.
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Cited by:
  1. Samuel Mansell, 2013. "Shareholder Theory and Kant’s ‘Duty of Beneficence’," Journal of Business Ethics, Springer, vol. 117(3), pages 583-599, October.
  2. Nicholas Dew & Saras Sarasvathy, 2007. "Innovations, Stakeholders & Entrepreneurship," Journal of Business Ethics, Springer, vol. 74(3), pages 267-283, September.
  3. S. Certo & Catherine Dalton & Dan Dalton & Richard Lester, 2008. "Boards of Directors’ Self Interest: Expanding for Pay in Corporate Acquisitions?," Journal of Business Ethics, Springer, vol. 77(2), pages 219-230, January.
  4. Argandoña, Antonio, 2005. "Firm, market economy and social responsibility," IESE Research Papers D/600, IESE Business School.

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