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date: 16 June 2021

Abstract and Keywords

This article contrasts three views or paradigms of the business enterprise and of critical management issues regarding governance. The first two are the agency and contracting paradigms. These dominate most discussion of the governance of corporate activities. The third is the capabilities perspective, which is starting to gain attention in the literature. Agency theory highlights how incentives should be crafted and governance activities focused to bring about better performance for shareholders when ownership and control are separated. Transaction cost economics highlights, as does agency theory, the importance of opportunism. But it adds asset specificity considerations that are also relevant to organizational design choices, including governance mechanisms. The capabilities perspective focuses less on managing opportunism and more on harnessing and managing opportunity. In that sense, it is closer to the essence of capitalism.

Keywords: agency approach, contracting, capabilities perspective, corporate governance, transaction costs

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