Stakeholder Capitalism, Corporate Governance and Firm Value

Franklin Allen, Elena Carletti and Robert Marquez

No ECO2009/10, Economics Working Papers from European University Institute

Abstract: In countries such as Germany, the legal system is such that firms are necessarily stakeholder oriented. In others like Japan social convention achieves a similar effect. We analyze the advantages and disadvantages of stakeholder-oriented firms that are concerned with employees and suppliers compared to pure shareholder-oriented firms. We show that in a context of imperfect competition stakeholder firms have higher prices and lower output than shareholder-oriented firms. Surprisingly, we also find that firms can be more valuable in a stakeholder society than in a shareholder society. With globalization stakeholder firms and shareholder firms often compete. We identify the circumstances where stakeholder firms are more valuable than shareholder firms, and compare these asymmetric equilibria with symmetric equilibria with stakeholder and shareholder firms. Finally, we show that, in some circumstances, firms may voluntarily choose to be stakeholder-oriented because this increases their value.

Keywords: stakeholder-oriented firms; shareholder-oriented firms; firm value; globalization (search for similar items in EconPapers)
JEL-codes: G34 D43 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-cse
Date: 2009
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Persistent link: http://EconPapers.repec.org/RePEc:eui:euiwps:eco2009/10

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