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Banks and Labor as Stakeholders: Impact on Economic Performance

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Author Info
Stijn Claessens
Kenichi Ueda

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Abstract

Traditionally, the impacts of the rights of financial institutions and workers on corporate performance have been analyzed independently. Yet, theory clearly indicates that the combination of relative powers of different stakeholders affects a firm overall performance. Using U.S. state level and state-industry level data, we investigate how output growth is affected by bank branch deregulation and employment protection occurring over 1972-1993. We find that financial liberalization positively impact overall state growth but greater workers' rights affects it ambiguously. At the industry level, however, employment protection promotes those industries that are more knowledge intensive, while the effect of financial liberalization does not differ across industries that vary in external financing dependency. The results hold controlling for changes in shareholders' rights, which itself is not significant. The findings suggest that financial liberalization operates mostly through an efficiency channel, better reallocating resources across sectors, while employment protection creates higher incentives and encourages more sector-specific, human capital investments. Overall, the results show that the strength of stakeholders' protection affects performance through efficiency channels and provide support for a stakeholders' view of corporate governance.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/229.

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Length: 39 pages
Date of creation: 30 Sep 2008
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Handle: RePEc:imf:imfwpa:08/229

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Keywords: Banks ; Labor ; Corporate governance ; Employment policy ; Industrial investment ; Industrial production ; Economic models ; Working Paper ;

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References listed on IDEAS
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Cited by:
(explanations, 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. Franklin Allen & Elena Carletti & Robert Marquez, 2009. "Stakeholder Capitalism, Corporate Governance and Firm Value," Economics Working Papers ECO2009/10, European University Institute. [Downloadable!]
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