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Stakeholder Governance, Competition, and Firm Value

Author

Listed:
  • Franklin Allen
  • Elena Carletti
  • Robert Marquez

Abstract

We analyze the strengths and weaknesses of stakeholder and shareholder firms in a model of imperfect competition. Stakeholder firms are more concerned with avoiding bankruptcy to protect their employees and suppliers. In equilibrium, they are more valuable than shareholder firms when marginal cost uncertainty exceeds demand uncertainty. With globalization shareholder firms and stakeholder firms often compete. We identify the circumstances where stakeholder firms are more valuable than shareholder firms and compare these mixed equilibria with the pure equilibria with stakeholder and shareholder firms only. Finally, we analyze firm financial constraints and derive implications for the capital structure of stakeholder firms.

Suggested Citation

  • Franklin Allen & Elena Carletti & Robert Marquez, 2015. "Stakeholder Governance, Competition, and Firm Value," Review of Finance, European Finance Association, vol. 19(3), pages 1315-1346.
    • Handle: RePEc:oup:revfin:v:19:y:2015:i:3:p:1315-1346.
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    More about this item

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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