The Relation between Stakeholders' Implicit Claims and Firm Value

In this study, we argue that data pertaining to a firm's reputation for satisfying stakeholder demands is informative on how both earnings and net book values are associated with firm value. We test our hypotheses on four key stakeholder groups: customers, employees, the community, and the environment. With the exception of the community (where our data contained too little variation), we find that firms with good stakeholder relations exhibit higher valuation coefficients on net book values and on earnings than firms with bad stakeholder relations, but only when the two hypotheses are tested independently. When the hypotheses are tested jointly, we find only one of these results to be significant in that the coefficients differ only on net book values for the customer and environment categories and only on earnings for the employee category. A finer partition of the data reveals that the results for the environment category are due to good firms exhibiting high valuation coefficients on net book values rather than bad firms exhibiting low coefficients, relative to average or neutral firms. When we compare bad firms to average or neutral firms for the environment category, we find that firms rated as bad exhibit lower valuation coefficients on earnings. Our results, especially for the employee and environment categories, suggest that future research would benefit from not only testing how a specific disclosure affects the relations between net book values and firm values, but also testing how the disclosure may affect the relations between earnings and firm values