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Unformatted text preview: 1996), also
suggest a way in which financial structures, and the
associated corporate-governance structures, are
closely linked with the labour market. Even if corporate-governance mechanisms are not geared to
maximizing shareholder value, as is often claimed to
be the case in Japan (Gibson, 2000), it may be that
the economy as a whole is efficient and that social
welfare is maximized. Weighting the interests of
parties other than shareholders is not necessarily
inefficient in a world of incomplete contracts. In
such a world, management decisions may be effectively ‘filling in’ the areas where contracts are
incomplete. In these circumstances it may be optimal to pre-commit to actions that take account of the
interests of other stakeholders in the company, since
such stakeholders bear risks which cannot be either
fully insured or fully specified (or prevented) by
contracts. If investment in relationships, willingness
to exert effort, etc., have economic value, then there
is a risk of under-investment by stakehold...
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This note was uploaded on 02/03/2014 for the course ECON 204 taught by Professor Devero during the Summer '13 term at American University of Sharjah.
- Summer '13