Some in the US have argued that the debate is closed and the "shareholder" camp has emerged victorious. Not so fast, respond Wharton finance professor Franklin Allen, and his co-authors Elena Carletti and Robert Marguez, in their new study "Stakeholder Capitalism, Corporate Governance and Firm Value." The study shows that,
The issue is not as settled as some researchers and business people in the United States, United Kingdom and other shareholder-oriented nations might think.The researchers used mathematical models "to explore the advantages and disadvantages of stakeholder-oriented firms." They found:
- Stakeholder-oriented companies have lower output and higher prices, and can have greater firm value than shareholder-oriented firms.
- Firms may voluntarily choose to be stakeholder-oriented because it will increase their value
- Consumers who prefer to buy goods and services from stakeholder firms can increase the number of stakeholder-oriented companies in a society.
- With the rise of globalization, domestic companies (both the stakeholder and shareholder types) earn more profits when stakeholder-oriented firms from foreign countries, rather than foreign shareholder-oriented firms, enter those domestic companies' markets.
For more on the debate, as well as additional details on which countries favor which approach and the results of these choices, check out Knowledge@Wharton's in-depth look at the study.