Stakeholder Theory and RBV

Stakeholder Theory 

Stakeholder concept is emphasized by Brummer (1991), justifying the theory from the perspective of descriptive, instrumental, and normative justifications. The main question is “Why would anyone accept the stakeholder theory over alternative conceptions of the corporation?” The conceptual model assume that corporations whose managers adopt stakeholder principles and practices will perform better financially than those that do not, summarizing in four central theses. 

Brummer (1991) emphasized Stakeholder concept

Descriptive principal describe specific corporate characteristics and behaviors: the nature of the firm, the way managers think about managing, how board members think about the interests of corporate constituencies, and how some corporations are actually managed. By the logic of descriptive justification, if new surveys showed that managers were abandoning stakeholder orientations, or if the legal support for broad stakeholder interests were to weaken, the theory would be invalidated, and in general we can assume this like weaknesses. Critical point of this approach is that descriptive support cannot be found in the literature, it has limited significance and I can agree with author and with Pejovich (1990:58) critics that the most important issues for stakeholder theory lie elsewhere.

Proposition of instrumental principal is that corporations practicing stakeholder management will, equal to relatively successful in conventional performance terms like profitability, stability, growth, etc. Framework model can be used for testing empirical claims, including instrumental predictions, relevant to the stakeholder concept, considering like critical point of view and weaknesses. Approach is essentially hypothetical, it says, in effect, "If you want to achieve (avoid) results X, Y, or Z, then adopt (don't adopt) principles and practices A, B, or C. By Freeman (1984) and approval by Thompson (1967), stakeholders has arisen from a tendency to adopt definitions such as "anything influencing or influenced by" the firm. We can ask the question: “Who are the legitimate stakeholders?” 

The normative approach include the identification of moral or philosophical guidelines for the operation and management of corporations, in contrast to the instrumental principal, is not hypothetical but categorical; it says, in effect, "Do (Don't do) this because it is the right (wrong) thing to do.  The argument is based on the neoclassical economic theory that believes a company can do activities as long as it is tranquil with the laws or the activities able to contribute to shareholders maximization. Theory support concept of a free market populated with free and rational preference seekers, compatible with both stakeholder and no stakeholder perspectives. An Enterprise strategy Schendel/Hofer (1979) describes the relationship between the firm and society by answering the question “What do we stand for?”

We can conclude that to justify the stakeholder model, conceptual apparatus of instrumental or efficiency-based theories (i.e., principal-agent relations and "firm-as contract" theory), rely upon no instrumental or normative arguments.

Some future research questions:

•        What is the relationship between stakeholder management models and firm financial performance?

The resource-based view perspective (RBV)

The RBV research on innovation is based on the fundamental premise that organizational resources and capabilities are those that underlie and determine a firm’s capacity for innovation.

emergent strategy are the basis of conceptual approach in the relationship between internal organization capabilities and external environment opportunities (Barney (1991), Grant (1991),. However, difference between them should be managed to gain competitive advantage.

The resource-based view perspective is the basis for environmental responsibility.  impact the financial performance and the slack availability of resources are the vice versa (Cortez & Cudia, 2012). Penrose (1959), Barney (1986) and Wernerfelt (1984) suggested that firm’s resources influences the capability of a firm to expand its business, and that there is the positive relationship between profitability and resources. Abnormal rents from resources can be earned if the resources are valuable, rare, imperfectly imitable, and nonsubstitutable. Valuable means that the resources should enable the company to employ a value-creating strategy. Rare  refers to the scarcity of the resources. The more scarce of the resource is the higher price reflected in the future. The proposed conceptual framework of integration between resources and competitive advantage for a better firm’s environment performance starting from the internal resources and environment, driven by the awareness and motivation of sustainability. Fundamental question of why firms are different and how firms achieve and sustain competitive advantage by deploying their resources.

The RBV research on innovation is based on the fundamental premise that organizational resources and capabilities are those that underlie and determine a firm’s capacity for innovation. Russo & Fouts (1997) considered organizational resources trough perspective of physical assets and technologies, human resources and organizational capabilities. Physical assets can be a source of competitive advantage if an organization can utilize them so that they “outperform” equivalent resources of competitors. Russo & Fouts (1997) found evidence that the connection between environmental performance and economic performance strengthens in higher-growth industries[1].

Slack availability is simply means that not all the company resources are allocated to provide maximum wealth. basic theories of slack availability of resources could be potential force for sustained competitive advantage (Adkins, 2005).

Research-based view perspective suggests that environmental cost, waste, and CO₂ emissions have positive impacts on financial performance. The latter was captured in several dimensions: sales, cost of sales (which supposed to have a negative coefficient) and net income are a proxy to capture profitability, ROA, ROE, and EPS are the basis for stakeholder and shareholders intention, stock price as a future expectation of company performance, and total assets as a representative of firm size.

->>>> hypotheses [LUM1] 

On the other hand, previous researcher suggests the slack availability of resources as an illustration of the reverse relationship. Here, the financial performance has positive impacts on the environmental responsibility. The argument based on the deem of companies have to be profitable and have enough financial resources before engaging in environmental responsibility. Thus, the variables should be reversed to capture this relationship; Corporate Social Responsibility becomes the controllable variable and financial performance as independent variable.

->>>  hypotheses[LUM2] 

Dynamic capability deo RBV ili posebno

Dynamic capability

In organizational theory, dynamic capability is the capability of an organization to purposefully adapt an organization's resource base. The concept was defined by David Teece, Gary Pisano and Amy Shuen, in their 1997 paper Dynamic Capabilities and Strategic Management, as "the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments."^[1]

The term is often used in the plural form, dynamic capabilities, emphasizing that the ability to react adequately and timely to external changes requires a combination of multiple capabilities.

Teece et al., (1997) have put forward the so-called ‘dynamic capabilities’ framework. Dynamic capabilities refer to the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments. In their view, coordination/integration, learning and transformation are the fundamental dynamic capabilities that serve as the mechanisms through which available stocks of resources (e.g. marketing, financial and technological assets) can be combined and transformed to produce new and innovative forms of competitive advantage.[2]

The Theory of the Growth of the Firm

The theory of the firm consists of a number of economic theories that explain and predict the nature of the firm, company, or corporation, including its existence, behavior, structure, and relationship to the market.^[1]

Main article: Economic growth

Growth economics studies factors that explain economic growth – the increase in output per capita of a country over a long period of time. The same factors are used to explain differences in the level of output per capita between countries, in particular why some countries grow faster than others, and whether countries converge at the same rates of growth.

Much-studied factors include the rate of investment, population growth, and technological change. These are represented in theoretical and empirical forms (as in the neoclassical and endogenous growth models) and in growth accounting.^[65]

Game theory is a branch of applied mathematics that considers strategic interactions between agents, one kind of uncertainty. It provides a mathematical foundation of industrial organization, discussed above, to model different types of firm behaviour, for example in an oligopolistic industry (few sellers), but equally applicable to wage negotiations, bargaining, contract design, and any situation where individual agents are few enough to have perceptible effects on each other. As a method heavily used in behavioural economics, it postulates that agents choose strategies to maximize their payoffs, given the strategies of other agents with at least partially conflicting interests.^[47][48]

In this, it generalizes maximization approaches developed to analyse market actors such as in the supply and demand model and allows for incomplete information of actors. The field dates from the 1944 classic Theory of Games and Economic Behavior by John von Neumann and Oskar Morgenstern. It has significant applications seemingly outside of economics in such diverse subjects as formulation of nuclear strategies, ethics, political science, and evolutionary biology.^[49]

Risk aversion may stimulate activity that in well-functioning markets smooths out risk and communicates information about risk, as in markets for insurance, commodity futures contracts, and financial instruments. 

Financial economics or simply finance describes the allocation of financial resources. It also analyses the pricing of financial instruments, the financial structure of companies, the efficiency and fragility of financial markets,^[50] financial crises, and related government policy or regulation.^[51]

HIPOTEZE[LUM3] :

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[1] Session_4-2_RBV on Corporate Environmental Performance and Profitability

[2] Kostopoulos, Konstantinos C., Yiannis E. Spanos, and Gregory P. Prastacos. "The resource-based view of the firm and innovation: identification of critical linkages." The 2nd European Academy of Management Conference. 2002.

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 [LUM1]Therefore, the hypotheses of this relationship in all the three industries are as the following.

H1a : Corporate Social Responsibility positive impact financial performance of automotive companies

H2a : Corporate Social Responsibility positive impact financial performance of spare parts companies

H1c: Corporate Social Responsibility positive impact financial performance of chemicals companies

 [LUM2]Therefore, the hypotheses in the three industries are as follows:  

H2a: Financial performance positive impact environmental responsibility of automotive companies

H2b: Financial performance positive impact environmental responsibility of spare parts companies

H2c: Financial performance positive impact environmental responsibility of chemicals companies

Those hypotheses can be expanded in each variable corresponding to other variable.

 [LUM3]Apart from avoiding future costs, improving environmental preparedness and performance should lead to a reputational benefit and increase the market value of a firm. With this in mind, the following hypotheses were formulated and will be tested in the coming analysis.  

1)      Model 1 – An increase in environmental preparedness rating is positively correlated with ROA because the costs of preparedness are assumed to be relatively low 

2)      Model 1 – An increase in environmental performance rating is negatively correlated with ROA because costs of performance are assumed to be significant

3)      Model 2 – An increase in environmental preparedness rating is positively correlated with Tobin’s Q because environmental work in any form is assumed to be a market value enhancing activity 

4)      Model 2 – An increase in environmental performance rating is positively correlated with Tobin’s Q because environmental work in any form is assumed to be a market value enhancing activity 

5)      Model 3 – Costs of preparedness are assumed to be relatively low even when being a first mover, therefore an improved preparedness rating in already high‐rated companies is believed to be positively related to ROA 

6)      Model 4 – An improved preparedness rating even when the company is already high‐rated is assumed to be positively related to Tobin’s Q since environmental work in any form is assumed to be a market value enhancing activity 

7)      Model 5 – Costs of performance are assumed to be significant, especially when being a first mover, therefore an improved preparedness rating in already high‐rated companies is believed to be negatively related to ROA

8)      Model 6 – An increase in performance rating even when the company is already high‐rated is assumed to be positively related to Tobin’s Q since environmental work in any form is assumed to be a market value enhancing activity

Since the hypotheses proposed suggest that the results are interesting only if they turn out in a particular direction, the one‐tailed t‐test is used to determine the level of significance. (For more on t‐test, see appendix 1)