Mutual Trust : A Critical Linkage Between Value Appropriation and Value Maximization

Abstract

Although value appropriation and value maximization are

fundamental for any firm's economic activities, previous research has

tended to treat them separately and to focus on each issue while taking

the other for granted. This paper suggests that the two processes, i.e.,

value appropriation and value maximization, are not separate; rather,

they are highly interrelated and reinforce each other through mutual

trust among major stakeholders, a crucial linkage between the two

processes. Specifically, this paper presents that fair value appropriation

- i.e., appropriating value to the stakeholders in proportion to their

stakes in the firm - contributes to the development of trust from the

stakeholders, not only directly, but also indirectly through strengthening

moral obligations of internal organizational members, particularly

managers, to the stakeholders. The present paper also shows how

mutual trust with the stakeholders leads to value maximization. After

examining the reinforcing effects of value maximization on value

appropriation, this paper concludes with some discussion about social

legitimacy of a firm and the roles of managers.