Corporate Governance, Non-Financial Stakeholders, and Innovation: Evidence from a Natural Experiment

39 Pages Posted: 28 Nov 2012 Last revised: 12 Oct 2014

Date Written: June 30, 2013

Abstract

I examine whether greater protection of non-financial stakeholders such as employees, customers and the community can enhance corporate benefits to these stakeholders, and hence impact firm innovation, value and capital structure. Using the exogenous passage of Constituency laws to measure stakeholder protection, I find that firms incorporated in states that pass the laws have a higher number of stakeholder-friendly policies. More importantly, I demonstrate that after the increase in stakeholder protection, firms with weaker governance experience lower innovation and firm value, and higher leverage than firms with better governance. This paper illuminates an understudied aspect of corporate governance by showing that managers are influenced by the diverse interests of financial and non-financial stakeholders, when determining investment and financial policies.

Keywords: Stakeholders, Corporate Governance, Capital Structure, Corporate Social Responsibility, Takeovers, Constituency Laws, Antitakeover Laws, Mergers and Acquisitions, Innovation, Patents, Productivity, Shareholder Value, Incomplete Contracts, Agency, Economic growth

JEL Classification: G31, G32, G34, G38

Suggested Citation

Atanassov, Julian, Corporate Governance, Non-Financial Stakeholders, and Innovation: Evidence from a Natural Experiment (June 30, 2013). Available at SSRN: https://ssrn.com/abstract=2181766 or http://dx.doi.org/10.2139/ssrn.2181766

Julian Atanassov (Contact Author)

University of Nebraska ( email )

CBA
University of Nebraska, Lincoln
Lincoln, NE 68588
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
733
Abstract Views
3,420
rank
45,311
PlumX Metrics