The Firm as an Entity: Management, Organization, Accounting

Abstract

Why delve into accounting to understand the economic nature of the firm? A Coase's recent suggestion calls economic organization and accounting system at issue for understanding how the special economics of the firm supersedes price system in creating and allocating resources. But incomplete contracts economics has no clear theorizing of these functional modes of existence constituting the firm as a whole (constituents), surely in reason of its methodological contractualism. Starting from Coase, Shubik and Simon, instead, this paper aims at further developing this issue, exploring the accounting system, its nature and role in the special economics of the firm concerned with real dynamics and complexity. By means of the accounting system dealing with the business incomes to the firm, the economic and monetary process generated by the whole firm acquires autonomous but interdependent existence from external markets (both from factors or products markets). The accounting system constitutes thus the "veil" that allows this special process to exist. Not only the real dynamics, but also the separation between ownership, control and management (as early discussed by Berle and Littleton) asks for the entity view on the firm provided by dynamic accounting. Even to protect shareholders, this kind of accountability is required, far away from the irrevocably lost proprietary sovereignty. In this accounting-friendly transactional and institutional perspective, the firm entity functions and exists as a managed dynamic system characterized by different structures of production, institutional, organizational, or epistemic (related to the nature and role of institutions, internal organization, and knowledge in the firm). Accounting system becomes a constituent part of these structures and of the whole firm. This new perspective opens to an interdisciplinary approach linking Economics, Accounting, and Law by the shared, synthetic notion of the firm as an entity, which provides the "clue" for understanding the nature of the firm as a whole.