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Employee Ownership, Board Representation, and Corporate Financial Policies

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  • Edith Ginglinger

    ()
    (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris Dauphine - Paris IX)

  • William Megginson

    (Oklahoma University - Oklahoma University)

  • Timothee Waxin

    (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris Dauphine - Paris IX)

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 HAL in its series Post-Print with number halshs-00626310.

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Date of creation: 2011
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Publication status: Published, Journal of Corporate Finance, 2011, 17, 868-887
Handle: RePEc:hal:journl:halshs-00626310

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

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Cited by:
  1. repec:hal:wpaper:hal-00842582 is not listed on IDEAS
  2. 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.
  3. 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.
  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. 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.
  6. Sandra Cavaco & Edouard Challe & Patricia Crifo & Antoine Rebérioux & Gwenael Roudaut, 2014. "Board independence and operating performance: Analysis on (French) company and individual data," EconomiX Working Papers 2014-2, University of Paris West - Nanterre la Défense, EconomiX.
  7. Franklin Allen & Elena Carletti & Robert Marquez, 2014. "Stakeholder Governance, Competition and Firm Value," CESifo Working Paper Series 4652, CESifo Group Munich.
  8. 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.

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