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Banks and Labor As Stakeholders

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Author Info

  • Kenichi Ueda
  • Stijn Claessens

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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Bibliographic Info

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

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Length: 39
Date of creation: 01 Sep 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/229

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Keywords: Banks; Labor; Industrial investment; Industrial production; Economic models; employment; employment protection; stakeholders; shareholders; corporate governance; unemployment; shareholder; shareholder protection; wrongful discharge; minority shareholders; skilled labor; unemployment rates; forms of employment; equilibrium unemployment; stakeholder; employment protections; effect on employment; employment at will; employment rates; shareholder value; employment contract; employer liability; empowerment of employees; employment rate; terms of employment; employment effects; employment policy; regulatory framework; shareholders ? rights; unemployment insurance; labor force participation; overall employment; unemployment increases; employment security; good corporate governance; employment creation;

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References

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Cited by:
  1. Brisley, Neil & Bris, Arturo & Cabolis, Christos, 2011. "A theory of optimal expropriation, mergers and industry competition," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 955-965, April.
  2. Ginglinger, Edith & Megginson, William & Waxin, Timothée, 2011. "Employee ownership, board representation, and corporate financial policies," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 868-887, September.
  3. Federico Cingano & Marco Leonardi & Julián Messina & Giovanni Pica, 2013. "Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy," Development Working Papers 354, Centro Studi Luca d\'Agliano, University of Milano.
  4. Allen, Franklin & Carletti, Elena & Marquez, Robert, 2007. "Stakeholder capitalism, corporate governance and firm value," CFS Working Paper Series 2007/26, Center for Financial Studies (CFS).

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