Contract costs, stakeholder capitalism, and ESG

Eugene F. Fama

doi:10.1111/eufm.12297

journal article Dec 08, 2020

Contract costs, stakeholder capitalism, and ESG

Eugene F. Fama

European Financial Management Vol. 27 No. 2 pp. 189-195 · Wiley

View at Publisher Save 10.1111/eufm.12297

Abstract

AbstractObserved contract structures are competitive solutions to the problem of maximizing stakeholder welfare when contracting is costly. Winning contract structures typically set fixed payoffs for most stakeholders, with residual risk borne by shareholders, who then get most of the decision rights. With rising interest in environmental, social, and governance (ESG) issues, there is sentiment for replacing the max shareholder wealth decision rule with max shareholder welfare. This view does not recognize that investors view max welfare in terms of their overall consumption‐investment portfolios. Since firms are not privy to the total ESG exposures of shareholders, max shareholder wealth is the appropriate decision rule.

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Metrics

80

Citations

10

References

Details

Published: Dec 08, 2020
Vol/Issue: 27(2)
Pages: 189-195
License: View

Authors

E

Eugene F. Fama

Booth School of Business University of Chicago Chicago Illinois USA

Cite This Article

Eugene F. Fama (2020). Contract costs, stakeholder capitalism, and ESG. European Financial Management, 27(2), 189-195. https://doi.org/10.1111/eufm.12297

Contract costs, stakeholder capitalism, and ESG

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