The document summarizes several theories of the firm, including: 1. Transaction cost theory explains why firms exist to minimize costs of exchanging resources internally and externally. Costs arise when transferring products between stages. 2. Agency theory describes the relationship between a principal delegating work to an agent, and how conflicts can arise from differing interests. 3. Growth theory examines how firms grow through internal expansion or external mergers and acquisitions, and the conflict between managers and shareholders. 4. Knowledge-based theory views knowledge as the most important resource for firms, and emphasizes organizational learning and knowledge sharing strategies.

1. Theories of the firm
Authors: Manukyan Ani, Melkonyan Anna, Kuzmich Valeria,
Petrosyan Felix
Group 5202

2. Table of Contents
 I. Introduction
 II. Theories of the firm
 1. The theory of transaction costs
 2. Agency theory
 3. Growth theory
 4. Knowledge-based theory of the firm
 III. Conclusion
 IV. Bibliography
 V. Q&A section

3. Introduction
Theories of the firm are ways of
conceptualising the firm. The answers
to the questions why firms exist and
what precisely a firm is are
fundamental for the understanding of
corporate governance.

4. The theory of transaction costs
Transaction costs are costs (e.g. in
terms of money or time) incurred
when making an economic
exchange.

5.  Transaction cost theory tries to explain why
companies exist, and why companies expand
 The transaction cost theory supposes that companies
try to minimize the costs of exchanging resources with
the environment, and that companies try to minimize
the bureaucratic costs of exchanges within the
company.
 Bureaucratic costs are the internal transaction costs

6. Transaction costs arise every time a product or service is
being transferred from one stage to another

7. Agency theory
Agency theory is a concept that explains why
behavior or decisions vary when exhibited by
members of a group.
It describes the relationship between one party,
called the principal, that delegates work to
another, called the agent.

9. “Agency Loss”
Agency loss is the difference between the best
possible outcome for the principal and the
consequences of the acts of the agent.
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10. The agency loss is minimized
when :
 the principal and the agent share
common interests
the principal is knowledgeable
about the consequences of the
agent’s activities

11. Growth theory
Conflict of interests: managers and shareholders

12. Growth by internal expansion

13. Growth by merger
Types of mergers:
Horizontal integration
Vertical integration
Conglomerate
integration

14. Knowledge-based theory
The knowledge-based theory of the firm considers
knowledge as the most strategically significant
resource of a firm.

16.  1. Knowledge transfers/conversions between
individuals
Stand-up coffee bars or dialogue rooms" with a table
and chairs help employees relax while solving
problems or sharing knowledge
 2. Knowledge transfers/conversions from
individuals to external structure
Publishing information in different media spheres

17.  3. Knowledge transfers/conversions from
external structure to individuals
Organize customers' quality management teams in order
to gain a better understanding of, and even anticipate,
customer needs.
 4. Knowledge transfers/conversions from
individual competence into internal structure
AI systems as document handling systems, databases,
etc.

18.  5. Knowledge transfers/conversions from
internal structure to individual competence
Designed a demonstration factory to manufacture a new
product line.
 6. Knowledge transfers/conversions within the
external structure
Organize special meetings, excursions or seminars for
customer.

19.  7. Knowledge transfers/conversions from external
to internal structure
Use sales force to collect data about their customers.
 8. Knowledge transfers/conversions from internal
to external structure
Create database, which allows its clients to tap into the
data sources used also by its own consultants.

20.  9. Knowledge Transfers/conversions within
Internal Structure
IT system
 10. Maximize Value Creation - See the Whole

21.  The knowledge-based theory of
the firm considers a very
special resource that does not
depreciate, and can generate
increasing returns – knowledge.
 Organizational learning plays
an important role in the
sustainability of the
competitive advantage
considering the knowledge-
based theory of the firm.
 To share knowledge-based
theory, it is necessary to create
a strategy which concerns all
parts of your organization.

22. Conclusion

23. Bibliography
 "Agency Theory." Investopedia. N.p., n.d. Web. 12 Feb. 2014.
<http://www.investopedia.com/terms/a/agencytheory.asp>.
 "Appalachian State University." Boone, North Carolina. N.p., n.d. Web. 11 Feb. 2014.
<http://www.appstate.edu>.
 DeNisi, A., M. Hitt, and S. Jackson. The Knowledge-Based Approach to Sustainable
Competitive Advantage. In Jackson, Hitt and DeNisi (Eds.) Managing Knowledge for
Sustained Competitive Advantage. San Francisco : Jossey-Bass, 2003. Print.
 Garvin, D. A.. Building a learning organization. Harvard Business Review on
Knowledge Management. Boston: MA: Harvard Business School Publishing, 1998.
Print.
 "Resource Dependency Theory." Resource Dependency Theory. N.p., n.d. Web. 12
Feb. 2014. <http://www.istheory.yorku.ca/resourcedependencytheory.htm>.
 "shane3-AGENCY THEORY FRAMEWORK." shane3-AGENCY THEORY
FRAMEWORK. N.p., n.d. Web. 12 Feb. 2014.
<http://fusionmx.babson.edu/entrep/fer/papers96/shane/shane3.htm>.
 Громыко В.В. Микроэкономика – 1:учебное пособие. –М.: МАКС Пресс, 2005.-
236с. (на англ. яз.)

24. Let’s play a game!

25.  The theory tries to explain why companies exist,
and why companies expand
 According to this theory, costs arise every time a
product or service is being transferred from one
stage to another
 This theory supposes that companies try to
minimize the costs of exchanging resources with
the environment

26. The theory
of transaction
costs

27.  The theory describes the relationship between
one party – principal and another- the agent
 According to this theory, the standard of
“Agency Loss” uses to estimate the actions
among 2 parties
 This theory shows 2 principles for loss
minimization

28. Agency
theory

29.  The theory tries to resolve a conflict of interests
 This theory has an internal and an external
aspect
 The theory has grown to a whole new subject

30. Growth
theory

31.  This theory is based on resource, which is
difficult to imitate.
 A lot of companies use this theory inappropriate
way.
 This theory appeared as a part of another
theory.

32. Knowledge-based
theory
of the firm

33. Thank you for your attention!