Article

 

Corporate governance and governance paradigms (p.173-196)

by

Bruno Dallago, Department of Economics, University of Trento.

Keywords : Corporate governance, shareholders, stakeholders, innovation

JEL classification : D23, G34, P12

Abstract

Three main governance perspectives exist. It is difficult to integrate them, since they consider the nature and functions of the firm in dissimilar ways and originate different governance choices. The first of these is the standard shareholder value analysis, which concentrates on the consequences of the separation between ownership and control and of contract incompleteness. With dispersed ownership, the crucial problem of corporate governance is to give shareholders proper incentives to supply firms with capital. The solution is to allocate control rights to shareholders, make information standardized, transparent and free and rely on the market for corporate control. The second is the stakeholder interest perspective according to which, the firm includes different stakeholders who have to implement some kind of firm specific investment. The firm is seen as a coalition of different competences, capabilities, roles and interests and corporate governance is concerned with how the allocation of residual rights of control to different stakeholders affects economic performance. And thirdly is the (post-)Schumpeterian innovative firm perspective, which concentrates on the governance of the process through which resources are developed as well as utilized in the economy. A system of corporate governance supports innovation by generating financial commitment, organizational integration and insider control.