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When labor representatives join supervisory boards: empirical evidence of the relationship between the change to parity codetermination and working capital and operating cash flows

Author

Listed:
  • Kerstin Lopatta

    (Carl von Ossietzky University Oldenburg)

  • Katarina Böttcher

    (Carl von Ossietzky University Oldenburg)

  • Reemda Jaeschke

    (Carl von Ossietzky University Oldenburg)

Abstract

We examine how the change to 50% labor representation on German supervisory boards is related to working capital and operating cash flows, since both are proxies for short-term financial policies. We expect the change to be associated with reduced working capital and increased operating cash flows. Using a difference-in-differences model, we compare a sample of listed and non-listed firms that changed to parity codetermination between 1987 and 2014 with two different groups of control firms that did not change their level of codetermination. In line with our hypotheses, the results suggest that a change to parity codetermination is related to lower working capital and higher operating cash flows compared to our control firms. We conclude that firms begin to engage in more efficient working capital management due to the change to parity codetermination on supervisory boards. We also conclude that the positive short-term effects on the firms’ operating performance imply that labor representatives do not bear just the interests of employees in mind, but also those of other stakeholders.

Suggested Citation

  • Kerstin Lopatta & Katarina Böttcher & Reemda Jaeschke, 2018. "When labor representatives join supervisory boards: empirical evidence of the relationship between the change to parity codetermination and working capital and operating cash flows," Journal of Business Economics, Springer, vol. 88(1), pages 1-39, January.
    • Handle: RePEc:spr:jbecon:v:88:y:2018:i:1:d:10.1007_s11573-017-0860-x
    DOI: 10.1007/s11573-017-0860-x
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    3. Kerstin Lopatta & Katarina Böttcher & Sumit K. Lodhia & Sebastian A. Tideman, 2020. "Parity codetermination at the board level and labor investment efficiency: evidence on German listed firms," Journal of Business Economics, Springer, vol. 90(1), pages 57-108, February.
    4. Gregorič, Aleksandra, 2022. "Board-level worker representation," GLO Discussion Paper Series 1136, Global Labor Organization (GLO).

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    More about this item

    Keywords

    Parity codetermination; Operating cash flows; Supervisory board; Working capital;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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