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Definition of

economic theory of the firm


idea that firm's responsibility is to serve stockholders the theory that the only duty that a company has to those external to it is financial. The economic theory of the firm holds that stockholders should be the prime beneficiaries of an organization's activities. The theory is associated with top-down leadership and cost cutting through rationalization and downsizing. With immediate stock price dominating management activities, the economic theory of the firm has been criticized as being too short-term, as opposed to the longer-term thinking behind stakeholder theory.

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Definitions of ’economic theory of the firm’ and meaning of ’economic theory of the firm’ are from the book publication, QFINANCE – The Ultimate Resource, © 2009 Bloomsbury Information Ltd. Find definitions for ’economic theory of the firm’ and other financial terms with our online QFINANCE Financial Dictionary.

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