Contractors as stakeholders: Reconciling stakeholder theory with the nexus-of-contracts firm John R. Boatright * School of Business Administration, Loyola University of Chicago, 820 N. Michigan Avenue, Chicago, IL 60611, USA Abstract The contractual or nexus-of-contracts theory serves as a normative foundation for both the stockholder and stakeholder conceptions of the firm. In this theory, each constituency or stakeholder group bargains with the firm over a set of rights that will protect the firm-specific assets that it makes available for production. This paper argues that the main difference be- tween the stockholder and stakeholder conceptions lies in different assumptions about the choice of protections that each constituency would make. The value of this thesis is that it identifies the points at issue between these two conceptions in ways that facilitate a reconcil- iation. Ó 2002 Elsevier Science B.V. All rights reserved. JEL classification: L20 Keywords: Contractual theory; Nexus-of-contracts; Stakeholder theory; Shareholders; Stakeholders 1. Introduction Modern financial economics views the firm as a nexus-of-contracts among its var- ious constituencies. This contractual perspective results from an economic approach that is commonly called the new institutional economics (Williamson, 1975). Until recently, neoclassical economic analysis offered only a rudimentary theory of the firm (Hart, 1989), but in the 1970s, economists, building on the pioneering work of Coase Journal of Banking & Finance 26 (2002) 1837–1852 www.elsevier.com/locate/econbase * Tel.: +1-312-915-6994; fax: +1-312-915-6988. E-mail address: jboatri@luc.edu (J.R. Boatright). 0378-4266/02/$ - see front matter Ó 2002 Elsevier Science B.V. All rights reserved. PII:S0378-4266(02)00194-2