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When Labor Has a Voice in Corporate Governance

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Author Info
Faleye, Olubunmi
Mehrotra, Vikas
Morck, Randall

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Abstract

Equity ownership gives labor both a fractional stake in a firm's residual cash flows and a voice in corporate governance. Relative to other firms, labor-controlled publicly traded firms deviate more from value maximization, invest less in long-term assets, take fewer risks, grow more slowly, create fewer new jobs, and exhibit lower labor and total factor productivity. Therefore, we propose that labor uses its corporate governance voice to maximize the combined value of its contractual and residual claims, and that this often pushes corporate policies away from, rather than toward, shareholder value maximization.

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Publisher Info
Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

Volume (Year): 41 (2006)
Issue (Month): 03 (September)
Pages: 489-510
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Handle: RePEc:cup:jfinqa:v:41:y:2006:i:03:p:489-510_00

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jensen, Michael C & Meckling, William H, 1979. "Rights and Production Functions: An Application to Labor-managed Firms and Codetermination," Journal of Business, University of Chicago Press, vol. 52(4), pages 469-506, October. [Downloadable!] (restricted)
  2. Jay C. Hartzell & Laura T. Starks, 2003. "Institutional Investors and Executive Compensation," Journal of Finance, American Finance Association, vol. 58(6), pages 2351-2374, December. [Downloadable!] (restricted)
  3. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May. [Downloadable!] (restricted)
  4. Allan C. Eberhart & William F. Maxwell & Akhtar R. Siddique, 2004. "An Examination of Long-Term Abnormal Stock Returns and Operating Performance Following R&D Increases," Journal of Finance, American Finance Association, vol. 59(2), pages 623-650, 04. [Downloadable!] (restricted)
  5. Chan, Su Han & Martin, John D. & Kensinger, John W., 1990. "Corporate research and development expenditures and share value," Journal of Financial Economics, Elsevier, vol. 26(2), pages 255-276, August. [Downloadable!] (restricted)
  6. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law & Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
  7. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February. [Downloadable!] (restricted)
  8. Callahan, William T. & Millar, James A. & Schulman, Craig, 2003. "An analysis of the effect of management participation in director selection on the long-term performance of the firm," Journal of Corporate Finance, Elsevier, vol. 9(2), pages 169-181, March. [Downloadable!] (restricted)
  9. Garvey, Gerald T. & Swan, Peter L., 1994. "The economics of corporate governance: Beyond the Marshallian firm," Journal of Corporate Finance, Elsevier, vol. 1(2), pages 139-174, August. [Downloadable!] (restricted)
  10. Jennifer E. Bethel & Julia Porter Liebeskind & Tim Opler, 1998. "Block Share Purchases and Corporate Performance," Journal of Finance, American Finance Association, vol. 53(2), pages 605-634, 04. [Downloadable!] (restricted)
  11. Morck, Randall & Shleifer, Andrei & Vishny, Robert W, 1989. "Alternative Mechanisms for Corporate Control," American Economic Review, American Economic Association, vol. 79(4), pages 842-52, September. [Downloadable!] (restricted)
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  12. Gordon, Lilli A. & Pound, John, 1990. "ESOPs and corporate control," Journal of Financial Economics, Elsevier, vol. 27(2), pages 525-555, October. [Downloadable!] (restricted)
  13. Beatty, Anne, 1995. "The cash flow and informational effects of employee stock ownership plans," Journal of Financial Economics, Elsevier, vol. 38(2), pages 211-240, June. [Downloadable!] (restricted)
  14. Kee H. Chung & Stephen W. Pruitt, 1994. "A Simple Approximation of Tobin's q," Financial Management, Financial Management Association, vol. 23(3), Fall.
  15. McConnell, John J. & Muscarella, Chris J., 1985. "Corporate capital expenditure decisions and the market value of the firm," Journal of Financial Economics, Elsevier, vol. 14(3), pages 399-422, September. [Downloadable!] (restricted)
  16. Myron S. Scholes & Mark A. Wolfson, 1989. "Employee Stock Ownership Plans and Corporate Restructuring: Myths and Realities," NBER Working Papers 3094, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  1. Renée Adams & Benjamin E. Hermalin & Michael S. Weisbach, 2008. "The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey," NBER Working Papers 14486, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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