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Stakeholder, Transparency and Capital Structure

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  • Andres Almazan
  • Javier Suarez
  • Sheridan Titman

Abstract

Firms that are more highly levered are forced to raise capital more often, a process that generates information about them. Of course transparency can improve the allocation of capital. However, when the information about the firm affects the terms under which the firm transacts with its customers and employees, transparency can have an offsetting negative effect. Under relatively general conditions, good news improves these terms of trade less than bad news worsens them, implying that increased transparency can lower firm value. In addition, we show that transparency can reduce the incentives of firms and stakeholders to undertake relationship specific investments. The negative effects of transparency can lead firms to pass up positive NPV investments that require external funding and to choose more conservative capital structures that they would otherwise choose. These effects should be especially important for technology firms that require a reputation for being on the leading edge.'

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10101.

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Date of creation: Nov 2003
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Handle: RePEc:nbr:nberwo:10101

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Cited by:
  1. Aleix Calveras & Juan José Ganuza & Gerard Llobet, 2005. "Regulation and opportunism: How much activism do we need?," Economics Working Papers 935, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Jose Ceron & Javier Suarez, 2006. "Hot And Cold Housing Markets: International Evidence," Working Papers wp2006_0603, CEMFI.
  3. Smith, Stephen D. & Wall, Larry D., 2010. "Debt, hedging and human capital," Journal of Financial Stability, Elsevier, vol. 6(2), pages 55-63, June.
  4. Abel Elizalde & Rafael Repullo, 2004. "Economic And Regulatory Capital. What Is The Difference?," Working Papers wp2004_0422, CEMFI.
  5. Utrero-Gonzalez, Natalia, 2007. "Banking regulation, institutional framework and capital structure: International evidence from industry data," The Quarterly Review of Economics and Finance, Elsevier, vol. 47(4), pages 481-506, September.
  6. Javier Díaz-Giménez & Josep Pijoan-Mas, 2006. "Flat Tax Reforms In The U.S.: A Boon For The Income Poor," Working Papers wp2006_0611, CEMFI.
  7. Juan-José Ganuza & Gerard Llobet & Beatriz Domínguez, 2009. "R& D in the Pharmaceutical Industry: A World of Small Innovations," Management Science, INFORMS, vol. 55(4), pages 539-551, April.
  8. Marta González & Josep Pijoan-Mas, 2005. "The Flat Tax Reform: A General Equilibrium Evaluation For Spain," Working Papers wp2005_0505, CEMFI.

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