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IESE Research Papers,
IESE Business School

No D/591: Why stakeholder and stockholder theories are not necessarily contradictory: A knightian insight

Rama Velamuri () and Sankaran Venkataraman
Additional contact information
Rama Velamuri: IESE Business School, Postal: Research Division, Av Pearson 21, 08034 Barcelona, SPAIN
Sankaran Venkataraman: 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.

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

19 pages, May 30, 2005

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