Weighting the interests of parties other than

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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.

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