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Firms' Stakeholders and the Costs of Transparency

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  • Andres Almazan
  • Javier Suarez
  • Sheridan Titman

Abstract

We develop a model of a firm whose production process requires it to start and nurture a relationship with its stakeholders. Because there are spillover benefits associated with being associated with a "winner," the perceptions of stakeholders and potential stakeholders can affect firm value. Our analysis indicates that while transparency (i.e., generating information about a firm's quality) may improve the allocation of resources, a firm may have a higher ex ante value if information about its quality is not prematurely generated. The costs associated with transparency arise because of asymmetric information regarding the extent to which stakeholders benefit from having a relationship with a high quality firm. These costs are higher when firms can initiate non-contractible innovative investments that enhance the value of their stakeholder relationships. Stakeholder effects of transparency are especially important for younger firms with less established track records (e.g., start-ups).

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13647.

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Date of creation: Nov 2007
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Publication status: published as Andres Almazan & Javier Suarez & Sheridan Titman, 2009."Firms' Stakeholders and the Costs of Transparency,"Journal of Economics & Management Strategy,Blackwell Publishing, vol. 18(3), pages 871-900, 09.
Handle: RePEc:nbr:nberwo:13647

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Cited by:
  1. Christian Keuschnigg & Peter Egger & Hannes Winner, 2010. "A Theory of Taxation and Incorporation," University of St. Gallen Department of Economics working paper series 2010 2010-25, Department of Economics, University of St. Gallen.
  2. Stulze, Rene M., 2008. "Securities Laws, Disclosure, and National Capital Markets in the Age of Financial Globalization," Working Paper Series 2008-13, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  3. Peter Egger & Christian Keuschnigg & Hannes Winner, 2008. "Incorporation and Taxation: Theory and Firm-level Evidence," University of St. Gallen Department of Economics working paper series 2008 2008-20, Department of Economics, University of St. Gallen.
  4. Ian Jewitt & Clare Leaver & Heski Bar-Isaac, 2007. "Information and Human Capital Management," Economics Series Working Papers 367, University of Oxford, Department of Economics.

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