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Stakeholder Capitalism, Corporate Governance and Firm Value

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  • Franklin Allen
  • Elena Carletti
  • Robert Marquez

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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Bibliographic Info

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

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References

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Citations

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Cited by:
  1. Nicolas Piluso & Gabriel Colletis, 2012. "Shareholder value and equilibrium rate of unemployment," Economics Bulletin, AccessEcon, vol. 32(4), pages 3233-3242.
  2. Ginglinger, Edith & Megginson, William & Waxin, Timothée, 2011. "Employee ownership, board representation, and corporate financial policies," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 868-887, September.
  3. Renneboog, Luc & Ter Horst, Jenke & Zhang, Chendi, 2008. "Socially responsible investments: Institutional aspects, performance, and investor behavior," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1723-1742, September.
  4. Managi, Shunsuke & Okimoto, Tatsuyoshi & Matsuda, Akimi, 2012. "Do Socially Responsible Investment Indexes Outperform Conventional Indexes?," MPRA Paper 36662, University Library of Munich, Germany.
  5. Luis H.B. Braido & V. Filipe Martins-da-Rocha, 2012. "Output contingent securities and efficient investment by firms," Levine's Working Paper Archive 786969000000000371, David K. Levine.
  6. Jürgen Odenius, 2008. "Germany's Corporate Governance Reforms: Has the System Become Flexible Enough?," IMF Working Papers 08/179, International Monetary Fund.
  7. Renneboog, Luc & Ter Horst, Jenke & Zhang, Chendi, 2008. "The price of ethics and stakeholder governance: The performance of socially responsible mutual funds," Journal of Corporate Finance, Elsevier, vol. 14(3), pages 302-322, June.
  8. Semenova, Natalia & Hassel, Lars & Nilsson, Henrik, 2009. "The Value Relevance of Environmental and Social Performance: Evidence from Swedish SIX 300 Companies," Sustainable Investment and Corporate Governance Working Papers 2009/4, Sustainable Investment Research Platform.
  9. Ge, Wenxia & Kim, Jeong-Bon & Song, Byron Y., 2012. "Internal governance, legal institutions and bank loan contracting around the world," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 413-432.
  10. Ojah Patrick, Ogebe & Joseph Orinya, Ogebe & Kemi, Alewi, 2013. "The Impact of Capital Structure on Firms’ Performance in Nigeria," MPRA Paper 45986, University Library of Munich, Germany, revised 04 Apr 2013.
  11. Alberto Chilosi, 2011. "Stakeholder protection in corporate governance and in the legal system, the varieties of capitalism, and long term unemployment," Discussion Papers 2011/126, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  12. Loretta J. Mester, 2010. "Comment on "A New Metric for Banking Integration in Europe"," NBER Chapters, in: Europe and the Euro, pages 246-253 National Bureau of Economic Research, Inc.
  13. Brisley, Neil & Bris, Arturo & Cabolis, Christos, 2011. "A theory of optimal expropriation, mergers and industry competition," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 955-965, April.
  14. Martijn Cremers & Vinay Nair & Urs Peyer, 2007. "Takeover Defenses and Competition," Yale School of Management Working Papers amz2491, Yale School of Management, revised 18 Sep 2007.
  15. Ogebe, Patrick & Ogebe, Joseph & Alewi, Kemi, 2013. "The Impact of Capital Structure on Firms’ Performance in Nigeria," MPRA Paper 46173, University Library of Munich, Germany.
  16. Kenichi Ueda & Stijn Claessens, 2008. "Banks and Labor as Stakeholders: Impact on Economic Performance," IMF Working Papers 08/229, International Monetary Fund.
  17. Leenheer, Jorna & de Nooij, Michiel & Sheikh, Omer, 2011. "Own power: Motives of having electricity without the energy company," Energy Policy, Elsevier, vol. 39(9), pages 5621-5629, September.
  18. Linus Wilson, 2011. "Hard debt, soft CEOs, and union rents," Managerial Finance, Emerald Group Publishing, vol. 37(8), pages 736-764, August.
  19. Jiao, Yawen, 2010. "Stakeholder welfare and firm value," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2549-2561, October.

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