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Employee Ownership, Board Representation, and Corporate Financial Policies

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

    Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/7306.

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    Date of creation: Sep 2011
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    Publication status: Published in Journal of corporate finance, 2011, Vol. 17, no. 4. pp. 868-887.Length: 19 pages
    Handle: RePEc:dau:papers:123456789/7306

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    Web page: http://www.dauphine.fr/en/welcome.html
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    Related research

    Keywords: Corporate boards; Privatization; Payout policy; Employee ownership;

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    Cited by:
    1. 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.
    2. Thierry Poulain-Rehm & Xavier Lepers, 2013. "Does Employee Ownership Benefit Value Creation? The Case of France (2001–2005)," Journal of Business Ethics, Springer, vol. 112(2), pages 325-340, January.

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