Stakeholder Capitalism, Corporate Governance and Firm Value

45 Pages Posted: 5 Mar 2007 Last revised: 6 Dec 2018

See all articles by Franklin Allen

Franklin Allen

Imperial College London

Elena Carletti

Bocconi University - Department of Finance; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Robert Marquez

University of California, Davis

Date Written: September 16, 2009

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.

Keywords: Firm objective, co-determination, imperfect competition

JEL Classification: G34, G38, L11

Suggested Citation

Allen, Franklin and Carletti, Elena and Marquez, Robert S., Stakeholder Capitalism, Corporate Governance and Firm Value (September 16, 2009). EFA 2007 Ljubljana Meetings Paper, European Corporate Governance Institute (ECGI) - Finance Working Paper No. 190/2007, Wharton Financial Institutions Center Working Paper #09-28, Available at SSRN: https://ssrn.com/abstract=968141 or http://dx.doi.org/10.2139/ssrn.968141

Franklin Allen (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Elena Carletti

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Robert S. Marquez

University of California, Davis ( email )

One Shields Avenue
Apt 153
Davis, CA 95616
United States

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