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Stakeholder Capitalism, Corporate Governance and Firm Value

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Author Info
Franklin Allen
Elena Carletti
Robert Marquez

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Abstract

In countries such as Germany, the legal system is such that firms are necessarily stakeholder oriented. In others like Japan social convention achieves a similar effect. We analyze the advantages and disadvantages of stakeholder-oriented firms that are concerned with employees and suppliers compared to pure shareholder-oriented firms. We show that in a context of imperfect competition stakeholder firms have higher prices and lower output than shareholder-oriented firms. Surprisingly, we also find that firms can be more valuable in a stakeholder society than in a shareholder society. With globalization stakeholder firms and shareholder firms often compete. We identify the circumstances where stakeholder firms are more valuable than shareholder firms, and compare these asymmetric equilibria with symmetric equilibria with stakeholder and shareholder firms. Finally, we show that, in some circumstances, firms may voluntarily choose to be stakeholder-oriented because this increases their value.

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Paper provided by European University Institute in its series Economics Working Papers with number ECO2009/10.

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Date of creation: 2009
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Handle: RePEc:eui:euiwps:eco2009/10

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Related research
Keywords: stakeholder-oriented firms; shareholder-oriented firms; firm value; globalization;

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Find related papers by JEL classification:
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection

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References listed on IDEAS
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  1. Aoki, Masahiko, 1990. "Toward an Economic Model of the Japanese Firm," Journal of Economic Literature, American Economic Association, vol. 28(1), pages 1-27, March. [Downloadable!] (restricted)
  2. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October. [Downloadable!] (restricted)
  3. 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, vol. 27(1), pages 107-22, February. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  5. Kenneth Scott, 1998. "The Role Of Corporate Governance In South Korean Economic Reform," Journal of Applied Corporate Finance, Morgan Stanley, vol. 10(4), pages 8-15. [Downloadable!] (restricted)
  6. Marco Pagano & Paolo Volpin, 1999. "The Political Economy of Corporate Governance," CSEF Working Papers 29, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Jul 2005. [Downloadable!]
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  7. Steven D. Sklivas, 1987. "The Strategic Choice of Managerial Incentives," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 452-458, Autumn. [Downloadable!] (restricted)
  8. Fauver, Larry & Fuerst, Michael E., 2006. "Does good corporate governance include employee representation? Evidence from German corporate boards," Journal of Financial Economics, Elsevier, vol. 82(3), pages 673-710, December. [Downloadable!] (restricted)
  9. Tirole, Jean, 2001. "Corporate Governance," Econometrica, Econometric Society, vol. 69(1), pages 1-35, January.
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  10. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June. [Downloadable!] (restricted)
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  11. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-40, December. [Downloadable!] (restricted)
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  12. Denis, Diane K. & McConnell, John J., 2003. "International Corporate Governance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(01), pages 1-36, March. [Downloadable!]
  13. Stijn Claessens & Kenichi Ueda, 2008. "Banks and Labor as Stakeholders: Impact on Economic Performance," IMF Working Papers 08/229, International Monetary Fund. [Downloadable!]
  14. Dasgupta, Sudipto & Titman, Sheridan, 1998. "Pricing Strategy and Financial Policy," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 11(4), pages 705-37.
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  15. Rajesh K. Aggarwal & Andrew A. Samwick, 1999. "Executive Compensation, Strategic Competition, and Relative Performance Evaluation: Theory and Evidence," Journal of Finance, American Finance Association, vol. 54(6), pages 1999-2043, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jürgen Odenius, 2008. "Germany's Corporate Governance Reforms: Has the System Become Flexible Enough?," IMF Working Papers 08/179, International Monetary Fund. [Downloadable!]
  2. Stijn Claessens & Kenichi Ueda, 2008. "Banks and Labor as Stakeholders: Impact on Economic Performance," IMF Working Papers 08/229, International Monetary Fund. [Downloadable!]
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