The implications of stakeholder orientation on corporate behavior and financial markets
This thesis investigates the implications of stakeholder orientation on corporate payout, stock liquidity, and cost stickiness. There is persistent debate on whether the company should be accountable to the interests of shareholders only or the welfare of the broader group of stakeholders. At the highest level, stakeholder orientation can be viewed as a decision-making mechanism that considers the interest of non-shareholder stakeholders. This research aims to provide an in-depth analysis of how stakeholder orientation influences the decisions and behaviors of managers and investors. Specifically, this thesis utilizes the adoption of constituency statute (CS) laws in the United States as an exogenous shock to undertake a difference-in-differences methodology and explore how stakeholder orientation influences firms’ payout policy, stock liquidity, and cost stickiness. The first chapter presents the introduction to this thesis. The introduction includes the background and motivation of stakeholder orientation. It then presents the institutional background of CS. The last part of the introduction discusses the contribution of this thesis and outlines the structure of the thesis. Chapter 2 examines the effect of stakeholder orientation on firms’ payout policies. The findings of this study show that stakeholder orientation leads to fewer stock repurchases and has no effect on cash dividends. The cross-sectional tests indicate that stakeholder-oriented companies tend to hold more cash to payoff implicit claims of stakeholders and signal their considerations on stakeholders. The conclusion is robust to alternative research design, stock repurchase measures, and subsample analysis. Chapter 3 investigates how investors respond to stakeholder orientation regarding stock liquidity. This study mainly focuses on two dimensions of stock liquidity (i.e., trading frequency and trading costs). The findings show that stakeholder orientation increases investors’ trading frequency and reduces trading costs. Further analyses indicate that the mitigation of information asymmetry by stakeholder orientation reduces investors’ trading costs, and the protection from the law legislation attracts investors to trade more. This research additionally shows that liquidity providers are more likely to provide liquidity for stakeholder-oriented companies. Chapter 4 investigates how stakeholder orientation influences managerial decisions on resource allocation. The results from this study show that stakeholder orientation leads to higher cost stickiness than shareholder-oriented companies. The empirical analyses are not only statistically significant but also economically meaningful, and additional tests show that such asymmetric cost behavior is mainly due to agency problems. The last chapter of this thesis concludes and presents future research directions.