Chapter 6: Opportunism, Trust and Knowledge: The Management of Firm Value and the Value of Firm Management
6 Opportunism, trust and knowledge: the management of ﬁrm value and the value of ﬁrm management Anoop Madhok 1. Introduction In their analysis of ﬁrms, economic scholars interested in the theory of the ﬁrm have been concerned primarily with costs. Even for economists of organization (e.g. Coase 1937; Williamson 1985; Alchian and Demsetz 1972) who depart from the assumptions of neoclassical theory and are more interested in the nature of the ﬁrm itself, rather than the representation of the ﬁrm as a production function, the central issue is still costs (for instance transaction costs, agency costs, contracting costs), all such costs stemming in one way or another from the supposed self-interested nature of the human condition. This concern with costs has prompted prominent scholars such as Rumelt et al. (1994: 41) to remark: There are several concerns about the role of senior management . . . Why are they needed and what do they do? All theory available suggests that they add costs without corresponding value. Yet they persist, and though we know much about their activities, which are typically strategic in character, we do not know much about the value they create. The concern expressed in the quote above calls attention to two key issues. First, much of earlier theory seeking to understand the behavior of ﬁrms and the role of management has tended to restrictively focus on the cost dimension. Second, and as a consequence of the ﬁrst, although the value-creating role of managers is of immense strategic importance, this dimension...
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