Stakeholder Capitalism, Corporate Governance and Firm Value

Abstract

In countries such as Germany, the legal system ensures that firms are stakeholder oriented. In others, like Japan, social norms achieve a similar effect. We analyze the advantages and disadvantages of stakeholderoriented firms that are concerned with employees and suppliers compared to shareholder-oriented firms in a model of imperfect competition. Stakeholder firms are more (less) valuable than shareholder firms when marginal cost uncertainty is greater (less) than 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. Abstract In countries such as Germany, the legal system ensures that firms are stakeholder oriented. In others, like Japan, social norms achieve a similar effect. We analyze the advantages and disadvantages of stakeholder-oriented firms that are concerned with employees and suppliers compared to shareholder-oriented firms in a model of imperfect competition. Stakeholder firms are more (less) valuable than shareholder firms when marginal cost uncertainty is greater (less) than 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. The results have interesting implications for the political economy of foreign entry. * In countries such as Germany, the legal system ensures that firms are stakeholder oriented. In others, like Japan, social norms achieve a similar effect. We analyze the advantages and disadvantages of stakeholder-oriented firms that are concerned with employees and suppliers compared to shareholder-oriented firms in a model of imperfect competition. Stakeholder firms are more (less) valuable than shareholder firms when marginal cost uncertainty is greater (less) than 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. The results have interesting implications for the political economy of foreign entry.

Ethical requirement and financial interest: a literature review on socially responsible investing

“…The other approach would be to also implement measures that reduce a company's future cash flows, so-called costly philanthropy (Mackey et al 2007). This argument is reviewed by Allen et al (2007) in a more global approach; they show that stakeholder-oriented societies have higher company values than shareholderoriented societies, which serves as proof of CSR's compatibility with shareholder gain maximization. Finally, Rivoli (2003) provides an interesting logic for the link between SRI and company valuation: She argues that companies might want to be screened in the positive group, rather than being screened out due to unethical behavior.…”

Banks and Labor as Stakeholders: Impact on Economic Performance

“…These theoretical analyses (e.g., Allen 2005, Allen, Carletti andMarquez, 2007; see also Tirole, 2006) argue that in a second best world with information asymmetries, agency issues, incomplete contracting and other problems, a proper configuration of all stakeholders' rights can lead to firm value maximization. Rather than being based on explanations where stakeholders affect firm performance unilaterally (e.g., banks providing financing and/or monitoring management), the incomplete contract-based theory suggests that firm performance varies with the rights and relative bargaining powers of multiple stakeholders.…”

The Costs of Being Private: Evidence from the Loan Market

“…2 Finally, our paper also provides some potential insights into the relative borrowing costs of being private in the US, since there is considerable overlap between the UK and US nancial systems and corporate governance structures (see e.g. Archarya, John, and Sundaram (2006) and Allen, Carletti, and Marquez (2006)). …”