A stakeholder rationale for risk management: implications for corporate finance decisions

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Typically, corporate financial decisions focus on the interests of shareholders, debtholders, and management, often overlooking non-financial stakeholders. Gregor Gossy explores the implications of relationships with non-financial stakeholders, such as customers, employees, and suppliers, on these decisions. He introduces a stakeholder rationale for risk management, examining its role in understanding conservative corporate financial decisions related to capital structure, cash holdings, and payout policies. The foundational theory of the firm significantly influences corporate finance theory. In the first part, Gossy discusses developments in new institutional economics and integrates them with insights from the resource-based view to establish a stakeholder-oriented theory of the firm. He posits that a firm's financial conservativeness correlates positively with its reliance on value-enhancing investments from stakeholders. In the second part, he empirically tests his hypotheses regarding corporate cash holdings and capital structure choices using a sample of 593 publicly listed companies in Austria and Germany.