Year: 2020
Type: report
Abstract: Markets and firms offer contrasting methods to arrange production.In markets, contracts govern the purchase of parts and services that compose production.In firms, the shared values, customs, and norms coming from a corporate culture govern employees' joint development of those parts and services.We argue for this distinction as a theory of the firm.Firms exist because corporate culture at times is more efficient at carrying out production than detailed contracts.The firm's boundary encircles the parts of production for which a manager optimally chooses corporate culture as the organizing device.The model can explain why some mergers and acquisitions fail, in a way consistent with empirical evidence, and why corporate cultures are hard to change.
DOI: 10.3386/w27353
Authors: Gary Gorton, Alexander Zentefis
Institutions: National Bureau of Economic Research, Yale University
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3035676993