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Firms' Stakeholders and the Costs of Transparency

Author

Listed:
  • Andres Almazan
  • Javier Suarez
  • Sheridan Titman

Abstract

"We develop a model of a firm whose production process requires it to initiate and nurture a relationship with its stakeholders. Because there are spillover benefits of 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. Transparency costs 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 undertake noncontractible 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." Copyright (c) 2009, The Author(s) Journal Compilation (c) 2009 Wiley Periodicals, Inc..

Suggested Citation

  • Andres Almazan & Javier Suarez & Sheridan Titman, 2009. "Firms' Stakeholders and the Costs of Transparency," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(3), pages 871-900, September.
  • Handle: RePEc:bla:jemstr:v:18:y:2009:i:3:p:871-900
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Heski Bar-Isaac & Ian Jewitt & Clare Leaver, 2007. "Information and Human Capital Managment," Working Papers 07-28, New York University, Leonard N. Stern School of Business, Department of Economics.
    2. 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.
    3. Kayhan, Ayla & Titman, Sheridan, 2007. "Firms' histories and their capital structures," Journal of Financial Economics, Elsevier, vol. 83(1), pages 1-32, January.
    4. Brigitte Hoogendoorn & Daniela Guerra & Peter Zwan, 2015. "What drives environmental practices of SMEs?," Small Business Economics, Springer, vol. 44(4), pages 759-781, April.
    5. repec:eee:pacfin:v:46:y:2017:i:pa:p:94-108 is not listed on IDEAS
    6. 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.
    7. 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.
    8. Nyborg, Kjell G & Wang, Zexi, 2013. "Stock Liquidity and Corporate Cash Holdings," CEPR Discussion Papers 9535, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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