Stakeholder Capitalism, Corporate Governance and Firm Value
University of Pennsylvania - Finance Department; European Corporate Governance Institute (ECGI)
Bocconi University - Department of Finance; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)
University of California, Davis
September 16, 2009
EFA 2007 Ljubljana Meetings Paper
ECGI - Finance Working Paper No. 190/2007
Wharton Financial Institutions Center Working Paper #09-28
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.
Number of Pages in PDF File: 39
Keywords: Firm objective, co-determination, imperfect competition
JEL Classification: G34, G38, L11
Date posted: March 5, 2007 ; Last revised: October 18, 2014
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