Stakeholder Governance, Competition and Firm Value

Review of Finance (Forthcoming)

43 Pages Posted: 28 Oct 2013 Last revised: 18 Oct 2014

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

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Date Written: February 13, 2014

Abstract

In many countries, the legal system or social norms ensure that firms are stakeholder oriented. 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. Finally, we analyze firm financial constraints and derive implications for the capital structure of stakeholder firms.

Suggested Citation

Allen, Franklin and Carletti, Elena and Marquez, Robert S., Stakeholder Governance, Competition and Firm Value (February 13, 2014). Review of Finance (Forthcoming). Available at SSRN: https://ssrn.com/abstract=2346430 or http://dx.doi.org/10.2139/ssrn.2346430

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
Davis, CA 95616
United States

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