Is My Firm-Specific Investment Protected? Overcoming the Stakeholder Investment Dilemma in the Resource-Based View

The resource-based view posits that firms achieve competitive advantage from value creation through firm-specific investments held by key stakeholders: employees, suppliers, and customers. Shareholder-dominant (agency) theory holds that all residual income claimant rights belong to shareholders, circumscribing other key stakeholders’ ability to appropriate value from their investment. However, recent enhancements to stakeholder theory grounded in property rights suggest that such stakeholders may need protection for implicit residual claims. A central purpose of this article is to build a model of the protection devices used to ensure these implicit rights. Individual ex ante devices such as stakeholder ownership only partially incentivize stakeholders’ firm-specific investments because they are subject to two types of uncertainties—behavioral and environmental—and individual devices aimed at reducing one type of uncertainty may exacerbate the other. We therefore expand on efforts to establish a stakeholder theory of strategic management by proposing an integrated model of protection devices, which seeks to overcome the incentive dilemma in reducing both uncertainties by reducing barriers to stakeholder firm-specific investment. Our model also explores the conflicts and complementarities associated with device implementation. Finally, we discuss theoretical and practical implications, as well as future research opportunities associated with our model.