Value distribution to stakeholders: The influence of stakeholder power and strategic importance in public firms

Abstract

Stakeholder strategy research seeks to explain how various stakeholder contexts affect the ways firms treat their stakeholders and the effects of these choices on overall firm performance. The dominant logic in this conversation frames a two-step process in which value is created by a firm before managers can distribute that value among the stakeholders. The stakeholder's power, or its ability to threaten the firm in some way, is commonly considered the primary factor in the second step value distribution process. However, we develop and test an argument that the ways managers engage with stakeholders to co-create value result in the stakeholder's strategic importance having more influence than power in the value distribution decision. The logic underlying this argument reverses the familiar two-step process so that it starts with value distribution. The implication is that firms arguably improve their overall performance by distributing more value to those stakeholders who are strategically important than to those stakeholders who exploit their bargaining power to threaten the firm. We find support for this novel explanation with an original dataset covering every firm that completed an IPO in Brazil between 2003 and 2017.