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Stakeholder Governance, Competition and Firm Value

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  • Franklin Allen
  • Elena Carletti
  • Robert Marquez
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    Abstract

    In many countries, the legal system or social norms ensure that firms are stakeholder oriented. We analyze the advantages and disadvantages of stakeholder-oriented firms that are concerned with employees and suppliers compared to shareholder-oriented firms in a model of imperfect competition. Stakeholder firms are more (less) valuable than shareholder firms when marginal cost uncertainty is greater (less) than demand uncertainty. With globalization shareholder firms and stakeholder firms often compete. We identify the circumstances where stakeholder firms are more valuable than shareholder firms and compare these mixed equilibria with the pure equilibria with stakeholder and shareholder firms only. Finally, we analyze firm financial constraints and derive implications for the capital structure of stakeholder firms.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2014/wp-cesifo-2014-02/cesifo1_wp4652.pdf
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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4652.

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    Date of creation: 2014
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    Handle: RePEc:ces:ceswps:_4652

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    1. Michael C. Jensen, 2001. "Value Maximization, Stakeholder Theory, And The Corporate Objective Function," Journal of Applied Corporate Finance, Morgan Stanley, Morgan Stanley, vol. 14(3), pages 8-21.
    2. Rajesh Aggarwal & Andrew A. Samwick, 1996. "Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence," NBER Working Papers 5648, National Bureau of Economic Research, Inc.
    3. Fauver, Larry & Fuerst, Michael E., 2006. "Does good corporate governance include employee representation? Evidence from German corporate boards," Journal of Financial Economics, Elsevier, Elsevier, vol. 82(3), pages 673-710, December.
    4. Maksimovic, Vojislav & Titman, Sheridan, 1991. "Financial Policy and Reputation for Product Quality," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 4(1), pages 175-200.
    5. Bae, Kee-Hong & Kang, Jun-Koo & Wang, Jin, 2011. "Employee treatment and firm leverage: A test of the stakeholder theory of capital structure," Journal of Financial Economics, Elsevier, Elsevier, vol. 100(1), pages 130-153, April.
    6. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
    7. Kenneth Scott, 1998. "The Role Of Corporate Governance In South Korean Economic Reform," Journal of Applied Corporate Finance, Morgan Stanley, Morgan Stanley, vol. 10(4), pages 8-15.
    8. Blinder Alan S., 1993. "A Simple Note on the Japanese Firm," Journal of the Japanese and International Economies, Elsevier, vol. 7(3), pages 238-255, September.
    9. Dore, Ronald, 2000. "Stock Market Capitalism: Welfare Capitalism: Japan and Germany versus the Anglo-Saxons," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199240616, October.
    10. Edith Ginglinger & William Megginson & Timothee Waxin, 2011. "Employee Ownership, Board Representation, and Corporate Financial Policies," Post-Print, HAL halshs-00626310, HAL.
    11. Verwijmeren, Patrick & Derwall, Jeroen, 2010. "Employee well-being, firm leverage, and bankruptcy risk," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(5), pages 956-964, May.
    12. Demsetz, Harold, 1983. "The Structure of Ownership and the Theory of the Firm," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 26(2), pages 375-90, June.
    13. Cespa, Giovanni & Cestone, Giacinta, 2004. "Corporate Social Responsibility and Managerial Entrenchment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4648, C.E.P.R. Discussion Papers.
    14. Chaplinsky, Susan & Niehaus, Greg, 1994. " The Role of ESOPs in Takeover Contests," Journal of Finance, American Finance Association, American Finance Association, vol. 49(4), pages 1451-70, September.
    15. Giovanni Cespa & Giacinta Cestone, 2007. "Corporate Social Responsibility and Managerial Entrenchment," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 16(3), pages 741-771, 09.
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