Corporate Stakeholders and Corporate Finance

This paper suggests some of the ways in which corporate financial policy depends on the role of non-investor stakeholders. The key to our analysis is recognizing that the firm sells its stakeholders both explicit and implicit claims. Unlike the explicit claims of stakeholders, implicit claims have n...

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Bibliographic Details
Published in:Financial management 1987-04, Vol.16 (1), p.5-14
Main Authors: Cornell, Bradford, Shapiro, Alan C.
Format: Article
Language:English
Subjects:
Applied Research Award Winner
Business structures
Capital investments
Capital structure
Claims
Corporate finance
Dividends
Financial management
Investors
Market value
Policy
Shareholders
Stock prices
Stock splits
Theory
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Summary:This paper suggests some of the ways in which corporate financial policy depends on the role of non-investor stakeholders. The key to our analysis is recognizing that the firm sells its stakeholders both explicit and implicit claims. Unlike the explicit claims of stakeholders, implicit claims have no legal standing, but rather arise out of the tacit promises to stakeholders that every firm must make as part of its ongoing operations. Since the firm can default on its unwritten promises without going bankrupt, prices of these claims are sensitive to stakeholder beliefs about the firm, including its financial condition. The stakeholder approach provides a new way of understanding the links between corporate finance and corporate strategy.
ISSN:0046-3892
1755-053X
DOI:10.2307/3665543