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Employee ownership, board representation, and corporate financial policies

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  • Ginglinger, Edith
  • Megginson, William
  • Waxin, Timothée

Abstract

French law mandates that employees of publicly listed companies can elect two types of directors to represent employees. Privatized companies must reserve board seats for directors elected by employees by right of employment, while employee-shareholders can elect a director whenever they hold at least 3% of outstanding shares. Using a comprehensive sample of firms in the Société des Bourses Françaises (SBF) 120 Index from 1998 to 2008, we examine the impact of employee-directors on corporate valuation, payout policy, and internal board organization and performance. We find that directors elected by employee shareholders increase firm valuation and profitability, but do not significantly impact corporate payout policy. Directors elected by employees by right significantly reduce payout ratios, but do not impact firm value or profitability. Employee representation on corporate boards thus appears to be at least value-neutral, and perhaps value-enhancing in the case of directors elected by employee shareholders.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Corporate Finance.

Volume (Year): 17 (2011)
Issue (Month): 4 (September)
Pages: 868-887

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Handle: RePEc:eee:corfin:v:17:y:2011:i:4:p:868-887

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Web page: http://www.elsevier.com/locate/jcorpfin

Related research

Keywords: Employee ownership Payout policy Privatization Corporate boards;

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Citations

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Cited by:
  1. Tristan Auvray & Olivier Brossard, 2013. "French connection: interlocking directorates and the ownership-control nexus in an insider governance system," CEPN Working Papers hal-00842582, HAL.
  2. Djaoudath Alidou, 2012. "Employees Equity Issue and Asymmetric Information:Evidence from France - Augmentations de capital réservées aux salariés et Asymétrie d’information:Cas de la France," Working Papers CREGO 1120901, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
  3. Tristan Auvray & Olivier Brossard, 2013. "French connection: interlocking directorates and the ownership-control nexus in an insider governance system," Working Papers hal-00842582, HAL.
  4. Palea, Vera, 2013. "The Politics of Fair Value Reporting and the Governance of the Standards-Setting Process: Critical Issues and Pitfalls from a European Perspective," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201353, University of Turin.
  5. Franklin Allen & Elena Carletti & Robert Marquez, 2014. "Stakeholder Governance, Competition and Firm Value," CESifo Working Paper Series 4652, CESifo Group Munich.
  6. Sandra Cavaco & Edouard Challe & Patricia Crifo & Antoine Rebérioux & Gwenael Roudaut, 2013. "Board independence and operating performance: Analysis on (French) company and individual data," Working Papers hal-00919408, HAL.
  7. Waxin, Timothée, 2010. "The Impact of Founding-Family Ownership on Labor Relations : Evidence from French Workplace-Level Data," Economics Papers from University Paris Dauphine 123456789/5892, Paris Dauphine University.

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