journal article Dec 08, 2020

Contract costs, stakeholder capitalism, and ESG

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.
Topics

No keywords indexed for this article. Browse by subject →

References
10
[1]
A Difficulty in the Concept of Social Welfare

Kenneth J. Arrow

Journal of Political Economy 10.1086/256963
[2]
Cornell B. &Shapiro A. C.(2020 October). Corporate stakeholders corporate valuation and ESG.Manuscript forthcoming in European Financial Management. 10.2139/ssrn.3715899
[3]
Agency Problems and the Theory of the Firm

Eugene F. Fama

Journal of Political Economy 10.1086/260866
[6]
Separation of Ownership and Control

Eugene F. Fama, Michael C. Jensen

The Journal of Law and Economics 10.1086/467037
[7]
Agency Problems and Residual Claims

Eugene F. Fama, Michael C. Jensen

The Journal of Law and Economics 10.1086/467038
[9]
Pastor L. (2020)
[10]
Does Competition Destroy Ethical Behavior?

Andrei Shleifer

American Economic Review 10.1257/0002828041301498
Metrics
80
Citations
10
References
Details
Published
Dec 08, 2020
Vol/Issue
27(2)
Pages
189-195
License
View
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
Related

You May Also Like

Understanding Regulation

Andrei Shleifer · 2005

309 citations

Europe's Second Markets for Small Companies

Silvio Vismara, Stefano Paleari · 2012

212 citations

Family Control and Financing Decisions

Ettore Croci, John A. Doukas · 2011

207 citations

Is the Aggregate Investor Reluctant to Realise Losses? Evidence from Taiwan

Brad M. Barber, Yi‐Tsung Lee · 2007

205 citations

Corporate stakeholders, corporate valuation and ESG

Bradford Cornell, Alan C. Shapiro · 2020

158 citations