The Theory Of Firms In The Perspective Of Knowledge

The firm is one of the most important objects in economic research. The theory of the firm is built up in the long-term pursuit of the accurate and comprehensive understanding about the born, the growth as well as the behavior of firms. However, as theories often developed in certain economic circumstances, both the classical theory of the firm and the modern firm theories have not considered the knowledge factor explicitly. In the last 20 years of the 20th century, large amounts of knowledge-intensive firms emerged, which have successfully created huge wealth in a short period with innovative technology, knowledge and ideas. Their success has made economists realize the important role knowledge plays in firms. In this dissertation, knowledge is treated as one of the basic factors that account for the nature, the organizational changes and the growth of enterprises. By analyzing the role of knowledge that plays in firms, we can also contribute to the issue that how knowledge boosts the macro-economy, of which economists are trying to discover the mechanism. Therefore, it is necessary to research firms from the perspective of knowledge. By reviewing the relevant literature and analyzing how knowledge acts in firms, we are able to broaden the firm theories effectively. Therefore, the main aim of this dissertation is to explain the nature, inner organizations and the growth of firms in the knowledge age.This dissertation consists of five parts. 1) In part one, the characteristics of the knowledge age and the knowledge-based firms are presented. The traditional ideas that the firm authority is exclusively connected to the physical capital are also reviewed. 2) In part two, by analyzing the characteristics, the specialization and cooperation of social knowledge, the fundamental reason for the existence of firms is presented. Firms have an advantage to use the scattered social knowledge more effectively. 3) In part three, according to the match theory of decision-making right and knowledge, the boundary of firm is determined and the changes in the organizational structure as well as the innovation of incentive systems are also explained. 4) In this part, it is concluded that the source of competitive advantage is the continual innovation of knowledge in a firm. The mechanism of knowledge producing is also explored and extended in this part. 5) In this part, we discover the real drive force for the growth of a firm and look into how knowledge assets promote the growth of a firm.By reviewing the traditional firm theories, it is found that all the theories related to firms have only considered the allocation of material resources, no mater the theory is developed in the classical economics or the neo-classical economics or the new institution economics. The produce process and finished products of traditional firms are tangible. Therefore, economists focused on the input, use and output of physical capital in the past and the traditional firm theories reflect the relationship between right arrangement and physical capital everywhere. In firms, authority is used to coordinate the factors to produce. Authority usually belongs to the owners of physical capital. However, another kind of firms are emerging and growing in amazing speed in the knowledge age, in which the input and final output is mainly knowledge and knowledge plays a critical role. This phenomenon has made economists realize that it is time to revise the existing theories. Using the traditional firm theories, it is very difficult to explain following problems reasonably: why the authority is transferring to knowledge workers; why the organizational structure tends to be simplified; why firms tends to encourage teamwork; why the creation and application of knowledge is increasingly regarded as the source of sustainable competitive advantage. One important reason is that the traditional theories seldom look into the role of knowledge. Combining the orthodox theory of the firm and the theory of knowledge to further the analyze of the nature of the firm will give us a broad understanding of firms, and therefore develop the theory of the firm.According to the existing studies, the specialization of labor is the specialization of knowledge essentially. Specialization makes knowledge widely distributed among individuals. In order to increase social productivity efficiently, cooperation is also demanded. This means it is vital to integrate and coordinate the scattered knowledge. As a lot of knowledge is tacit, much knowledge is difficult to be transferred through the market to a more suitable place. Thus, people begin to seek an alternative organization that can effectively price the knowledge they possess. Firm is such an organization. Therefore, firm is related to knowledge when it is built up. Firm is an effectively way to exploit the scattered knowledge. Authority should not be necessarily allocated to the owner of a certain factors (such as land, capital and labor). It should be allocated to the firm participants who have more knowledge about the contract relationship and who can coordinate the use of scattered knowledge. If the persons who have sufficient knowledge get coordinate right, it will allow firms to price knowledge more reasonable. Therefore, all participants will benefit from it and the society will make a relatively better use of the social knowledge. The existence of firm is the result of the specialization of knowledge creation, the wide distribution of knowledge, the coordinate use of knowledge, the difficulty in knowledge transfer, and the long-term sustainability of the knowledge accumulation. Firms provide the environment and conditions to integrate the decentralized knowledge. Compared with the market, firm has an advantage in utilizing knowledge and creating knowledge.As coordinators of knowledge, the firm must continually seek efficient ways to employ knowledge in order to retain its advantage over the market, which is the reason why the firm exists. In order to save the cost of employing knowledge in the firm, it should be considered to match the decision-making right with the special knowledge. Doing so will incur two kinds of costs. First, if the decision-making right are authorized to individual employees, chances are that the employees'objectives are not compatible with that of the organization. That will lead to some agency costs. Second, if the decision-making right is not matched correctly with the specific knowledge, the decisions made by someone who lack knowledge required may turn out to be ineffective. it will also incur costs. Both costs are related to the distribution of the right in the firm, and are inversely connected to each other. Therefore, the distribution of decision-making right should balance the two costs. The boundary of the firm is determined by whether it will save costs if expand the firm. Vertically, if a producing progress the knowledge in other stages of production, we need integrate that production stage into a firm. Horizontally, a lot of knowledge can be used to produce many products. In order to take advantage of this kind of knowledge, the firm demands to diversify. Besides, firm knowledge is not entirely disposed to firm production. Therefore, it provides a chance for strategic alliances among the firms. These two costs of knowledge also lead to the changes in the organizational structure and the innovation of incentive systems. When the operations of firms rely increasingly on the specific knowledge that scattered in individual employees, it will cause a high cost if the decision-making right in the corporate is concentrated on the authority centre. In such circumstances, the firm will not retain the centralized hierarchical structure. It is needed to simplify the principal-agent relationship to reduce the cost incurred by incompatible goals between employees and firms. Therefore, many types of organizations in which the decision-making right are decentralized are created to make better use of those knowledge which is difficult to transfer. This change also shows that the pattern of organizations will vary in response to the type and density of knowledge in the firm. Firms also need to recognize that it is difficult to evaluate the input of knowledge, so the effect of the traditional incentive theories will be limited. It is also important to take knowledge into consideration and consider how to motivate the firm to input factors. By adopting game theory to analyze the behavior of participants in the firm, it is found that stable firm can provide the long-term expectation. The firm is able to provide the environment to foster a common culture and motivate participants to cooperate with each other. The build-up of such an environment will help the firm to solve the dilemma that the output of motivation is proportional to the input, and also help to materialize the maximum of the potential productivity of all kinds of special technologies and form a joint force to reach the aim of the firm.Once realizing the importance of knowledge in the firm, economists should not just conduct statics and comparative statics analysis in their research. Since knowledge creation is an ongoing dynamic process, the firm as a coordinator of knowledge is also a process, and therefore should be researched dynamically. The mechanism of knowledge creation in the firm is scrutinized in this dissertation. By introducing the dimensions of abstract and concrete as well as the social knowledge levels, we extend the spiral SECI model of the knowledge creating. It is found that the firm is indispensable in the knowledge creation. It is also found that it is the firms who are committed to the creation and use of knowledge as well as the innovation of knowledge obtain competitive advantages, survive in the competition and continue to grow. By adopting the firm theory of endogenous growth and the conclusion that the knowledge innovation lead to competitive advantages, this dissertation discusses the original force lies behind the growth of the firm. The process that the firm uses to effectively employ and continually create knowledge forms its own unique dynamic knowledge which is hard to be imitated by its rivals. This kind of knowledge helps the firm to save resources and therefore release a large number of management resources to solve other unusual problems. This kind of knowledge also enables the firm to improve their ability of coordination and to gain competitive advantages. The stock of knowledge of the firm and the ability to create knowledge determine the approach and the rate of firm growth. So if the enterprise wants to find a healthy approach of growth, it should take advantage of their knowledge assets reasonablely. Knowledge assets combined with other inputs promote the growth of the firm. Different types of knowledge assets contribute to the growth in different ways.In order to testify this theory, we use the empirical data form 639 listed companies. The results show that the most important factor that affects the marketing value of the firm is knowledge asset. Therefore, the enterprise should make use of knowledge assets effectively in order to make greater profit in the future.In conclusion, we analyze the firm from the perspective of knowledge and develop a comparatively integrated firm theory based on knowledge. Several innovative attempts have been made in this dissertation. Firstly, contract firm theory and the theories of knowledge firms are systematically reviewed at the same time. Secondly, by revising the traditional firm theory that authority in the firm should be distributed to the owners of material capital, it is concluded in this dissertation that authority also should be given to the participant who have the special knowledge which is critical to the survival and development of the firm. Thirdly, by comparing the two kinds of costs incurred by the use of knowledge in the firm, an explain is provided for the change of organizational structure. Fourthly, by adopting a game theory model in which psychological factor is incorporated, some suggestions are given about how to motivate innovations within the firm. Fively, we introduce the abstract and concrete dimensions as well as social knowledge level into the SECI model and demonstrate how knowledge is created in three dimensions. Sixly, by using the empirical data, an estimation is made.In general, by analyzing the use and creation of knowledge, this dissertation identifies the knowledge component in the firm. In order to motivate the firm to invest in, create and sufficiently take advantage of knowledge assets, we should respect the law that rules the movement of knowledge, when we distribute the decision-making right, formulate incentive systems and make a further plan. As joint-stock company takes the place of the partnership enterprise in history, it can be forecasted that the knowledge-based firms will definitely play a more and more important role in the near further.