TY - JOUR AU - Almazan, Andres AU - Suarez, Javier AU - Titman, Sheridan TI - Firms' Stakeholders and the Costs of Transparency JF - National Bureau of Economic Research Working Paper Series VL - No. 13647 PY - 2007 Y2 - November 2007 DO - 10.3386/w13647 UR - http://www.nber.org/papers/w13647 L1 - http://www.nber.org/papers/w13647.pdf N1 - Author contact info: Andres Almazan Finance Department McCombs School of Business University of Texas at Austin Austin, TX 78712-1179 E-Mail: andres.almazan@mccombs.utexas.edu Javier Suarez CEMFI Casado del Alisal 5 28014 Madrid Spain Tel: +34-914290551 E-Mail: suarez@cemfi.es Sheridan Titman Finance Department McCombs School of Business University of Texas at Austin Austin, TX 78712-1179 Tel: 512/232-2787 Fax: 512/471-5073 E-Mail: titman@mail.utexas.edu M1 - published as Andres Almazan, Javier Suarez, Sheridan Titman. "Firms' Stakeholders and the Costs of Transparency," in Thomas Hellman and Scott Stern, editors, "Entrepreneurship: Strategy and Structure" Journal of Economics and Management Strategy 18(3), Fall 2009 (Blackwell Publishing) (2009) AB - We develop a model of a firm whose production process requires it to start and nurture a relationship with its stakeholders. Because there are spillover benefits associated with being associated with a "winner," the perceptions of stakeholders and potential stakeholders can affect firm value. Our analysis indicates that while transparency (i.e., generating information about a firm's quality) may improve the allocation of resources, a firm may have a higher ex ante value if information about its quality is not prematurely generated. The costs associated with transparency arise because of asymmetric information regarding the extent to which stakeholders benefit from having a relationship with a high quality firm. These costs are higher when firms can initiate non-contractible innovative investments that enhance the value of their stakeholder relationships. Stakeholder effects of transparency are especially important for younger firms with less established track records (e.g., start-ups). ER -