Firms' Stakeholders and the Costs of Transparency

Andres Almazan, Javier Suarez and Sheridan Titman

No 13647, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a model of a firm whose production process requires it to start and nurture a relationship with its stakeholders. Because there are spillover benefits associated with being associated with a "winner," the perceptions of stakeholders and potential stakeholders can affect firm value. Our analysis indicates that while transparency (i.e., generating information about a firm's quality) may improve the allocation of resources, a firm may have a higher ex ante value if information about its quality is not prematurely generated. The costs associated with transparency arise because of asymmetric information regarding the extent to which stakeholders benefit from having a relationship with a high quality firm. These costs are higher when firms can initiate non-contractible innovative investments that enhance the value of their stakeholder relationships. Stakeholder effects of transparency are especially important for younger firms with less established track records (e.g., start-ups).

JEL-codes: D21 D23 (search for similar items in EconPapers)
Date: 2007-11
New Economics Papers: this item is included in nep-bec and nep-cse
Note: IO
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published as Andres Almazan & Javier Suarez & Sheridan Titman, 2009."Firms' Stakeholders and the Costs of Transparency,"Journal of Economics & Management Strategy,Blackwell Publishing, vol. 18(3), pages 871-900, 09.
Published as Firms' Stakeholders and the Costs of Transparency , Andres Almazan, Javier Suarez, Sheridan Titman. in Entrepreneurship: Strategy and Structure , Hellmann and Stern. 2009

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Journal Article: Firms' Stakeholders and the Costs of Transparency (2009)
Chapter: Firms' Stakeholders and the Costs of Transparency (2007)
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