Abstract

http://ssrn.com/abstract=468788
 
 

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Stakeholder, Transparency and Capital Structure


Andres Almazan


University of Texas at Austin - Department of Finance

Javier Suarez


Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Sheridan Titman


University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

November 2003

NBER Working Paper No. w10101

Abstract:     
Firms that are more highly levered are forced to raise capital more often, a process that generates information about them. Of course transparency can improve the allocation of capital. However, when the information about the firm affects the terms under which the firm transacts with its customers and employees, transparency can have an offsetting negative effect. Under relatively general conditions, good news improves these terms of trade less than bad news worsens them, implying that increased transparency can lower firm value. In addition, we show that transparency can reduce the incentives of firms and stakeholders to undertake relationship specific investments. The negative effects of transparency can lead firms to pass up positive NPV investments that require external funding and to choose more conservative capital structures that they would otherwise choose. These effects should be especially important for technology firms that require a reputation for being on the leading edge.'

Number of Pages in PDF File: 43

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Date posted: November 21, 2003  

Suggested Citation

Almazan, Andres and Suarez, Javier and Titman, Sheridan, Stakeholder, Transparency and Capital Structure (November 2003). NBER Working Paper No. w10101. Available at SSRN: http://ssrn.com/abstract=468788

Contact Information

Andres Almazan
University of Texas at Austin - Department of Finance ( email )
Red McCombs School of Business
Austin, TX 78712
United States
512-471-4368 (Phone)
512-471-5073 (Fax)
HOME PAGE: http://www.mccombs.utexas.edu/dept/finance/faculty/profiles/index.asp?addTarget=4
Javier Suarez
Centre for Monetary and Financial Studies (CEMFI) ( email )
Casado del Alisal 5
28014 Madrid
Spain
+34 91 429 0551 (Phone)
+34 91 429 1056 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Sheridan Titman (Contact Author)
University of Texas at Austin - Department of Finance ( email )
Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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References:  31
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