Abstract

The chapter explains the meaning of firms from the perspective of economic researchers in the past to the views of current dates. Traditional model of a firm’s value is linked firmly with shareholders’ value. This traditional view is used in finance and in business for many years. To enhance a firms’ value, we need to maximize shareholders’ value. According to this view, any activities in firms can increase the value of firms if it increases the value of the Shareholders. However, traditional concept of shareholders’ value as the explanation to firms’ value is challenged by a group of researchers. This group believes that value of firms should not be based on just shareholders but should include all groups of stakeholders. After giving some ideas on the meaning of firm, the corporate sustainability value of firm in terms of economics and finance is explained.

Highlights

  • In the early part of the nineteenth century, business units were owned by individuals or small groups of individuals

  • Back in the 1960s, many researchers whose works related to the theory of firm or firm value cited the classic paper of Ronald Coase when they wrote about firm theory

  • One may find that the level of corporate social responsibility (CSR) is higher for low insider firms and low institutional holdings. These findings suggest that investing in the CSR may not be due to the interest of shareholders but from the personal interest of managers

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Summary

Overview of the chapter

The author attempts to evaluate the concept of the theory of firm value as it has passed through its interpretive history. The earlier stage of the concept maintained the interpretation that a firm is merely a legal device through which the private business transactions of individuals are maintained and operated. Such a concept has dominated business, finance, and economic understanding about a firm’s theory for a long time. What we have learnt after using this traditional theory for half a century is that the simple focus on single stakeholders creates some important problems that require attention with regard to the drawbacks of the theories in the past. The author shows that stakeholders’ theory has been transformed into many versions of the current conceptualization-of-firm theory, such as sustainability concepts, triple bottom lines, or the CSR theory

The traditional conceptualization of a “firm”
Corporate governance
Ownership structure and monitoring system
Corporate social responsibility
New challenges for firms
From shareholders to stakeholders
Sustainability of a firm
Stakeholders and sustainability
Why sustainability?
Conclusion
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