Theory of the Firm

Companies strive to position themselves to maximize the value they add to the supply chains in which they are embedded. This raises strategic questions such as: Which durable resources should be developed to enhance current core competencies? Which activities should be externalized and to which potential partner should they be given? Which internal activities should be preserved and developed? How should the resources of the enterprise be allocated to activities? The aim of this paper is to propose a mathematical programming model of the extended enterprise which can be used to investigate this type of strategic networking issues. A number of general network modeling constructs are ®rst proposed. A model to optimize the supply chain structure under speci®c assumptions on the nature of production, cost and value functions in typical production/distribution companies is then derived. A heuristic to obtain solutions from the model is also presented. Finally, an example based on a refrigerator company is used to illustrate the usefulness of the approach.

We need better concepts to talk about gig economy workers and other precarious workers who are subject to the arbitrary domination of powerful companies, but who do not fit neatly into twentieth century understandings of employment. We suggest a new approach for characterizing this kind of work, which we call “labor without employment.” To update labor law for the twenty-first century, we need to decouple the rights and protections that it generates from the category of “employee.” ” Some forms of labor, even when not “employed” under a
traditional definition, are still deserving of protections against exploitation and discrimination and still require safe work conditions and the ability to bargain collectively over these terms.

This article examines the implications of the escalation in institutional inves power and heterogeneity for two dominant theories of corporate governanceagency theory and stakeholder theory. From this analysis, a new view of the agency relationship between institutional investors and their portfolio firms emerges, which recognizes the institutions’ market power, complex role as financial intermediaries, and possible involvement in simultaneous and opposing agency contracts. We also conclude that stakeholder theorists should reconsider these newly empowered shareholders’moral standing in relation to their portfolio firms, and they should reexamine the identities and goals of these modern investors. To that end, we demonstrate that a novel, intragroup application of Mitchell, Agle, and Wood’s stakeholder framework to heterogeneous institutional investors illuminates their varying levels of stakeholder salience.

Departing from the seminal question that Coase raised in his 1937 work, this article discusses and assesses incomplete contracts theories' analyses of the firm's boundaries-notably transaction cost theory and the modern theory of property rights-by investigating the case of the vertical network organization (VNO). We perform a theoretical characterization and analysis of the functioning rules of the VNO to shed light on intra-network incentive provisions and coordination mechanisms. Our findings cast doubt on the role that hold-up considerations on the firm's boundaries play and allow us to question forms of power within the VNO. Finally, we focus on the theoretical implications of the emergence of the VNO. The legal nature of the firm does not match the economic definition of the VNO, which tends to treat the firm as a specific governance structure.

Em 1986, David Teece publicou o artigo Proting from technological innovation: Implications for integration, collaboration, licensing and public policy, que contribuiu significativamente para o estudo dos impactos das inovações tecnológicas no mercado. A sua análise da gestão da inovação colaborou na construção de concepções mais realistas da forma, contrapondo-se e aprimorando as perspectivas teóricas mais tradicionais. Como reconhecimento da importância dessa pesquisa, em 2006, a Research Policy, revista na qual foi publicada o referido trabalho, organizou uma edição especial de comemoração dos 20 anos de sua publicação. A relevância daquele artigo se confirma ao saber que, em julho de 2006, ele era o mais citado dos que já foram publicados pela revista, com um total de 681 citações naquela época. Isso se deve à perspectiva interdisciplinar que o autor conferiu à abordagem do tema da inovação, o que acabou garantindo uma dimensão mais ampla do assunto. Nesse contexto, o presente artigo tem como objetivo analisar as contribuições e a atualidade do artigo de David Teece de 1986, especialmente no que tange ao debate relacionado aos direitos de propriedade intelectual. Foi realizada pesquisa teórica que se ancora no diálogo entre o artigo da década de oitenta e alguns autores que publicaram na edição especial da Research Policy de 2006 (vol. 35, nº 8), dentre eles o próprio Teece. O presente trabalho foi, portanto, dividido em duas seções. Na primeira, serão abordados os principais aspectos do artigo de 1986, evidenciando, sobretudo, a visão do autor sobre a importância dos ativos complementares na obtenção de lucros com a inovação e sua interface com os regimes de apropriabilidade. Na segunda, fundamentalmente a partir dos artigos de Gary Pisano, Giovani Dosi, Luigi Marengo, Corrado Pasquali e Richard Nelson publicados na Research Policy, vol. 35, nº 8, (2006), serão expostas as conclusões destes autores e de outros no que tange à aplicação da teoria Profiting from Innovation (PFI) sobre os regimes de apropriabilidade, sob a luz das mudanças contemporâneas na natureza da propriedade intelectual.

El objetivo de este capítulo es describir y sintetizar las ideas de Harold Demsetz, un teórico del institucionalismo económico, cuya propuesta parte de criticar las deficiencias tanto de la teoría neoclásica, como de los trabajos de Ronald Coase y Oliver Williamson.

What are we to make of the power that corporations wield over people in modern society? Is such power legitimate? Many think so. To many businessmen and economists, as well as the general public, firms are purely private and economic entities, justified in using all legal means to maximize profit.

In The Form of the Firm, Abraham Singer contends that such a view rests on a theoretical foundation that, while quite subtle, is deeply flawed. Contrary to the conventional wisdom, corporations are not natural outgrowths of the free market. Instead, Singer invites us to see corporations as political institutions that correct market inefficiencies through mechanisms normally associated with government -hierarchy, power, and state-sanctioned authority. Corporations exist primarily to increase economic efficiency, but they do this in ways that distinguish them from the markets in which they operate. Corporations serve economic ends, but through political means. Because of this, Singer argues that they also must be structured and obliged to uphold the social and political values that enable their existence and smooth-running in the first place: individual autonomy, moral and social equality, and democratic norms and institutions.

A profound and timely rethinking of what a corporation actually is and how power within it ought to be structured and exercised, The Form of the Firm will reshape our understanding of political theory, corporate governance, corporate law, and business ethics.

Scholars have used various models of organizational aspirations where aspirations depend on prior performance and the performance of comparable firms. We extend the models to incorporate selective attention. Using direct aspiration measures on sales performance in an automotive manufacturer, we find selective attention influences aspiration levels.

The article compares alternative approaches to the theory of the firm. The two main approaches confronted are the contractual (Coasian) perspective and the competence (evolutionary) perspective. Whereas the firm as a repository of tacit knowledge is neglected in the contractual perspectives, it occupies center stage in the competence perspective. It is argued that the competence perspective is not only applicable an understanding of the sources of firms' competitive advantage, but may also be applied to the issues of the existence and the boundaries of the firm. This means that a distinct theory of the firm can be constructed on the basis of evolutionary theory.

The properties of the firm are crucial starting points for developing theories on economy and management. The aim of this study is to propose a general theory of the social organization of production, mapping the essential conditions for its creation, development, and growth. In order to do so, we propose an evolutionary theory in which the relations of the organization's sociotechnical system manifest themselves through a self-perpetuating dynamic where leaders take on the role of social attractors and their viable outline is defined by their capacity for regeneration and by the flows of resources and information that pass through them. This goes against the finalist conceptions of the firm, in which the scope is to meet external demands. In this type of dynamics, the objective of the structure is to ensure its own organization and the realization of its identity and autonomy.

Though they developed in isolation, the theory of entrepreneurship and the economic theory of the firm can be usefully integrated. In particular, the concept of entrepreneurship as judgment associated with and some Austrian school economists aligns naturally with the theory of the firm. Because judgment cannot be purchased on the market, the entrepreneur needs a firm -a set of alienable assets he controls -to carry out his function. We show how this notion of judgment illuminates key themes in the modern theory of the firm (existence, boundaries, and internal organization). In our approach, resource uses are not data, but are created as entrepreneurs envision new ways of using assets to produce final goods. The entrepreneur's problem is aggravated by the fact that capital assets are heterogeneous. Asset ownership allows the entrepreneur to experiment with novel combinations of heterogeneous assets. The boundaries of the firm, as well as aspects of internal organization, may also be understood as responses to entrepreneurial processes of experimentation.

Based on an in-depth case study of Pilkington Plc, this study illustrates that received perspectives in organization theory and theory of the firm fall short of explaining organizational evolution. The framework of organizational evolution developed in this paper is combinatorial in two ways. First, it shows how factors drawn from different perspectives can be combined in understanding organizational evolution. Second,

… the invention of a great number of machines which facilitate and abridge labour, and enable one man to do the work of many' Smith 1981 [1776]) p. 17 1 Prepared for B. Hall and N. Rosenberg (eds.) (2010), Handbook of Innovation, Elsevier, Amsterdam/New York, forthcoming. Comments by

Calvin Schermerhorn’s provocative study views the development of modern American capitalism through the window of the nineteenth-century interstate slave trade. This eye-opening history follows money and ships as well as enslaved human beings to demonstrate how slavery was a national business supported by far-flung monetary and credit systems. The author details the anatomy of slave supply chains and the chains of credit and commodities that intersected with them in virtually every corner of the pre–Civil War United States, and explores how an institution that destroyed lives and families contributed greatly to the growth of the expanding republic’s capitalist economy.

Product switching, i.e., the addition and deletion of products by continuing firms, is an important and very active margin of firm adjustment that has, until now, received very little attention. We show that two-thirds of U.S. manufacturing firms alter their mix of five-digit SIC products every five years, and that added and dropped products comprise a substantial fraction of firm output. Product switching is positively correlated with firm outcomes and the choices firms make about which products to coproduce provide insight into goods' demand and supply complementarities. These results highlight the need for a dynamic theory of the firm that emphasizes product choice. We develop a framework that models firms' incentives to alter their product mix as a function of evolving firm, product and industry characteristics, as well as the interactions of these characteristics, over time.

In Private Government: How Employers Rule Our Lives (and Why We Don't Talk about It) , Elizabeth Anderson argues that beneath the facades of market freedom and contractual equality, contemporary firms are actually akin to authoritarian private governments. While this is a compelling and provocative analysis that sheds important light on the coercive and hierarchical facets of modern workplaces, Abraham Singer wonders whether the rise of the gig economy might demand new concepts for understanding the firm today.

This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the 'separation and control' issue, investigate the ...

Since the start of the demutualization wave in early 1990s, debate ensued about the impact of this program and while many researchers and policy makers have praised the demutualization of stock exchanges, others have been more sceptical and tended to be reluctant in undertaking the demutualization decision. Prior literature focused on assessing the impact on the performance of the demutualization program. While assessing the performance of demutualized stock exchanges provides useful insights for policy makers on the usefulness and value of this program, it remains important for policy makers to link the implementation of this program to the nature of the stock exchange, including its existence, behaviour and its relationship with the market and the external factors. The aforementioned description is explained thoroughly by the theory of the firm. This paper provides a description of how the demutualization program is linked to the theory of the firm.

Although FDI have been at the forefront of economic debate since a long time, economists have not yet developed a unified framework for their investigation. In this paper, we put forward the idea that an essential point to analyze FDI concerns their underpinning motives. Motives are at the core of FDI and FDI are only but one of different alternative means for firms to grasp an opportunity in a foreign country. We discuss the factors that shape the set of available alternatives and analyze those affecting the decision to engage in FDI (internalisation determinants), along with those influencing their localisation (localisation determinants). Starting from Dunning (1993) we put forward a revised taxonomy of FDI motives consistent with this framework - resource seeking, market seeking and non-marketable asset seeking. In order to show its practical implications, we survey common empirical issues on FDI showing how our analysis can shed light on seemingly contradictory empirical results.

Given assumptions about the characteristics of knowledge and the knowledge requirements of production, the firm is conceptualized as an institution for integrating knowledge. The primary contribution of the paper is in exploring the coordination mechanisms through which firms integrate the specialist knowledge of their members. In contrast to earlier literature, knowledge is viewed as residing within the individual, and the primary role of the organization is knowledge application rather than knowledge creation. The resulting theory has implications for the basis of organizational capability, the principles of organization design (in particular, the analysis of hierarchy and the distribution of decision-making authority), and the determinants of the horizontal and vertical boundaries of the firm. More generally, the knowledge-based approach sheds new light upon current organizational innovations and trends and has farreaching implications for management practice.

Entrepreneurship is a missing component of several leading theories of the firm. Entrepreneurship is key to the growth and survival of firms in a volatile environment, because ent repreneurial judgement is necessary to success in making complex decisions under uncertainty. The addition of entrepreneurship is not a minor refinement of the theory of the firm, but represents a radical change. The paper summarises the principle changes. It suggests that the introduction of entrepreneurship can facilitate the development of an integrated synthetic theory of the firm.

Abstract: The issue of firm ownership is an ongoing debate. For several decades,
contractarian theory has undoubtedly shaped the academic debate in both law and
economics. Proponents of this approach suggest that shareholders can legitimately
be considered the owners of a firm because they hold shares. This approach,
though attractive, is legally incorrect. Legal scholars have noted that a corporation
cannot legally belong to shareholders or other stakeholders; no one owns the firm
(and a corporation). The question of firm ownership masks the following crucial
issue: Who should govern the firm? In this article, after returning to the theoretical
debate on firm ownership and explaining why a firm cannot be owned, we shall
analyze power as the core of firm governance. This approach is a potentially
relevant and accurate way to address the problems of specific human investment,
collective creation and productive (consummate) cooperation in modern firms.

Whereas the majority of research on board diversity explores the direct relationship between racial and gender diversity and firm performance, this paper investigates mediators that explain how board diversity is related to firm performance. Grounded in signalling theory and the behavioural theory of the firm, we suggest that this relationship operates through two mediators: firm reputation and innovation. In a sample of Fortune 500 firms, we find a positive relationship between board racial diversity and both firm reputation and innovation. We find that reputation and innovation both partially mediate the relationship between board racial diversity and firm performance. In addition, we find a positive relationship between board gender diversity and innovation.j oms_839 755..786

This paper summarizes the key findings from the report "The Italian Road to Recuperating Enterprises and the Legge Marcora Framework: Italy's Worker Buyouts in Times of Crisis." The report homes in on worker-recuperated enterprises (imprese recuperate dai lavoratori) in Italy, specifically focusing on Italy's worker buyouts (WBOs)—the form of worker-recuperated enterprise predominating in Italy—facilitated by its Legge Marcora (Marcora Law) framework. Reviewing the key sections and findings of the full report, this summary paper first offers a definition of WBOs as a subset of worker-recuperated enterprises. It also addresses the most common scenarios from which WBOs emerge globally. It then overviews Legge Marcora's legal and financial framework, and situates the emergence of Italian WBOs since the early 1980s as direct responses to market failure, business closures, rising unemployment, and, with the most recent WBOs, coinciding with the Great Recession and subsequent austerity measures that continue to negatively impact the country. The paper finally discusses key findings from our research on WBO creation in Italy, touching on their most salient demographic and geographic particularities. Throughout, the paper and the full report distinguish Italy's WBOs as exemplar because of their resilience in times of crisis, and the inclusion of multiple stakeholders in its WBO framework, namely: workers, the cooperative sector, and the state.

Companies in the natural resources industry (e.g., mining, timber, farming and fishery) face the dilemma of whether to focus upstream or downstream in the value chain. The literature provides arguments and empirical evidence for either position. This paper presents an analytical framework based on the neoclassical theory of the firm, for which the best competitive advantage is the one that maximizes production efficiency. It serves to formulate an optimization model for the sawmill industry, and draws the data from the largest sawmilling company in the southern hemisphere. Although one conclusion is that the company should concentrate on the upstream activities, such conclusion is not applicable to other firms, since the analysis of the upstream-downstream dilemma must focus on the individual capabilities of each firm.

I n this introductory piece, we take stock of the impact of Cyert and March's A Behavioral Theory of the Firm, describe current research trends in the behavioral tradition, and introduce the special issue's papers. A Behavioral Theory of the Firm is one of the most influential management books of all time. In the book, Cyert and March developed theoretical building blocks that became the foundations for current research in organizational studies in management, economics, political science, and sociology. Cyert and March also made theoretical propositions that are investigated and extended in current work on organizational learning theory and evolutionary economics.

A tanulmány a ma meghatározó vállalatelméletnek, a tranzakciós költségek elméletének az előzményeit, leg fontosabb nézeteit, és a szakirodalomban fellelhető kritikáit mutatja be. Kitér azokra az új elméleti irányza tokra is, amelyek a tranzakciós költségek elméletének felhasználásával és/vagy kritikájával új utakat jelentenek a vállalatelméletben. A szerző szerint ezeket az új, egymással kapcsolatba nemigen került elméleteket a több dimenziós vállalatelmélet értékeli fel.

Benedictine Farm is located in Nyangole B-Village, in the Eastern Division of Tororo Municipality. It is so established at a confluence of several firms that hail and derive their sense of belonging from the Benedictine Fathers’ Firm. It was started by a German White Father in about 1983, having purchased land from the locals.
The farm then took off active production as a mixed enterprize with crops like maize, sorghum, beans and, dairy production, goat and piggery management among others. For these to flourish, there was need for other supporting enterprises, and as such a technical school, carpentry and metal workshops, and eventually a hospital had to be established.
Today the farm sits on a staggering 150 acres of land which is party to different Land-Use Managements. About half of this land is used for direct agricultural production, one third used up by the rest of the firms, and the remaining portion is currently not under complete utilization.
The farm currently ventures in a multi-enterprize business. A number of cereals like maize, millet, legumes like beans, and oil seed crops like sunflower, soybean, groundnut, and sim-sim among others are grown; coupled with several vegetables like garden egg, tomatoes, hot pepper, and fruits like papaya, citrus are also grown. Animals like dairy cattle, improved goats, and swine are reared.
The farm has stood a test of time through mass production over the years. Most of this production has been semi-intensive, but with a relatively low input rate of agricultural chemicals, and which has greatly had an implication on the overall yield over the years.
It is however important to note that proper motivation and retooling of workers, as well as increment on the rate of input use will produce amazing results, and which will positively impact on overall yield, productivity, and hence profits the farm receives.

In this article, we employ a Veblenian framework to analyze three dimensions of corporate financialization: the expansion of the balance sheet, the rising importance of intangible assets and the growing levels of financial payouts. Our focus is the pharmaceutical sector, which is strongly dominated by a handful of large corporations known as Big Pharma. In our empirical analysis of the financial accounts of 27 of the largest global pharmaceutical corporations for the years 2000–2018, we find evidence of a shift in Big Pharma’s business model from one focused on productive capacity (reflected by fixed capital and R&D) to one focused on intangible assets (reflected by patents, brands and goodwill). The modus operandi of Big Pharma is one that increasingly resembles that of a private equity fund that generates returns for shareholders that are supported by monopolized knowledge through intellectual property rights, capitalized future earnings potential and rising debt burdens. Our framework facilitates the study of the different elements of financialization and how they do (or do not) co-evolve over time, within and between industries, and between countries or global regions. 

Keywords: monopoly, Thorstein Veblen, intangible assets, shareholder value, corporate finance


We discuss the notion of ownership in economics, taking our point of departure in the Grossman-Hart-Moore property rights approach. We criticize the exclusive identification of ownership with residual rights to control in this approach, and argue that economic organization may be rendered determinate under complete contracting (contrary to the GHM approach). Crucially, we argue that under complete contracting, some control rights may be appropriable because of measurement and enforcement costs. This holds the key to a theory of ownership that is not dependent on the notion of residual rights to control, but rather relies on appropriable control rights. However, the two perspectives may be complementary rather than rival.

The interest of this document, is to determine how firms are built and who really has the control inside those organisations. Ohada Act don't give an exhaustiver definition of control. To give a tool to tecachers, lawyers and managers we have decided to contribute to the construction of a strong definition of control starting with the Commercial Societies Uniform Act, by taking in account, tax law definition, accounting definition. We have also showed how this notion is fundamental in many areas in plus of society of law such as labor law,  tax law, competition law.

This chapter provides a link between the previous sections which analysed competitive markets under profit-maximizing assumptions and the following parts which consider product market imperfections, factor inputs in the form of labour and human capital, as well as the micro-economics of the public sector (for example, bureaucracies). The analysis will be largely confined to private firms. Once again, the aim is to provide a framework which can be used to analyse a multitude of policy issues.This chapter starts by outlining some of the central ideas in the development of theories of the firm. An explanation is required for the existence of firms, after which alternative objectives will be considered, together with their policy implications. Two policy issues will be addressed in detail. First, the economic logic of subsidy policy and second, whether governments need an industrial policy.

This article hypothesizes that the level of managerial ownership affects both the informativeness of earnings and the magnitude of discretionary accounting accrual adjustments. The hypothesis draws on the theory of the firm, and exploits: (1) separation of ownership from control of economic decisions, (2) the extent and consequences of accounting-based contractual constraints, and (3) managers' incentives in selecting and applying accounting techniques. Results show managerial ownership is positively associated with earnings' explanatory power for returns and inversely related to the magnitude of accounting accrual adjustments. Moreover, ownership is less important for regulated corporations, suggesting regulation monitors managers' accounting choices.

The problem of economic calculation is relevant outside the extremes of purely for-profit enterprise and socialist central planning: calculation is also a vital lens through which to view alternative forms of economic organization in the market economy. This chapter examines one such example: the growing field of social entrepreneurship. Although it attracts major interest in management studies, social entrepreneurship has received scant attention from economists. This chapter resolves this oversight by placing the theory of social entrepreneurship on an economic foundation. It outlines the economic meaning of social behavior and shows that conventional market entrepreneurship is deeply social, while at the same time, social ventures are inevitably bound up with some kind of profit motive. This implies that the line between social and conventional entrepreneurship is not as clear as is sometimes thought. Importantly, social enterprises must engage in economic calculation if they want to survive in competitive markets. This means they must rely on external prices
for the goods and services they produce, as without them they cannot estimate the social opportunity costs of their decisions.

Corrupt exchanges are often brokered by a third party, but this phenomenon has not been satisfactorily explored by researchers of corruption. Literature on brokerage in general provides interesting models but they have not previously been applied to corrupt exchanges. Based on in-depth qualitative interviews with respondents who participated in actual corrupt transactions, this paper identifies several distinct brokerage types in low-level corruption in contemporary Hungary. The paper also provides explanation of variation in corruption brokerage in terms of actors' group affiliations, forms of the corrupt exchanges, brokerage mechanisms, as well as neutrality, benefit and motivation, risk distribution, and stability of the brokerage structure. Finally, we discuss some policy implications of corruption brokerage.

A vállalatelméleteknek két nagy ága különíthető el: szerződéses vállalatelméletek és erőforrásalapú vállalat­ elmélet. A szerződéses elméletek Coase-i alapokon álInak, meglehetősen kiforrott nézetek jellemzik őket és hatalmas az irodalmuk. Az erőforrásalapú vállalatelméletet ezzel szemben szerteágazó nézetek és a stratégiai menedzsmenthez való erős kötődés jellemzi. A tanulmány felvázolja az erőforrásalapú elmélet legfontosabb nézeteit a vállalatelméletek gerincét képező három kérdés megválaszolásával. Az elmélet hiányosságainak taglalása után hangsúlyozza, hogy a továbbfejlődés útját az evolúciós közgazdaságtan felé történő határozott nyitás, és a szerződéses elméletekkel való komplementaritás megteremtése jelenti.

This paper outlines the conceptual, cultural, contextual and disciplinary scope of the rapidly evolving topic of corporate governance. As a basis for improving the rigour of research and analysis, some definitions are suggested. Reasons for the diversity of viewpoints and concerns are considered. To provide an orientation for new scholars and those from specialised disciplines, recent surveys of corporate governance are reviewed from their ethnocentric, contextual, and intellectual contingencies. The prospects of developing the topic as a "science of organization" are considered along with areas for future research.