Stakeholder, Transparency and Capital Structure / Andres Almazan, Javier Suarez, Sheridan Titman.

By:

Almazan, Andres

Contributor(s):

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w10101.Publication details: Cambridge, Mass. National Bureau of Economic Research 2003.Description: 1 online resource: illustrations (black and white)Subject(s):

G3 - Corporate Finance and Governance

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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.'

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Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w10101 (Browse shelf(Opens below))	Not For Loan

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November 2003.

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.'