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Handbook of Trust Research

Edited by Reinhard Bachmann and Akbar Zaheer

The Handbook of Trust Research presents a timely and comprehensive account of the most important work undertaken in this lively and emerging field over the past ten to fifteen years. Presenting a broad range of approaches to issues on trust, the Handbook features 22 articles from a variety of disciplines on the study of trust in both organizational and societal contexts. With contributions from some of the most eminent names in the field of trust research, this international collaboration is an imaginative and informative reference tool to aid research in this engaging area for years to come.
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Chapter 6: Opportunism, Trust and Knowledge: The Management of Firm Value and the Value of Firm Management

Anoop Madhok


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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