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When Labor Has a Voice in Corporate Governance

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Author Info
Olubunmi Faleye
Vikas Mehrotra
Randall Morck

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Abstract

Equity ownership gives labor both a fractional stake in the firm's residual cash flows and a voice in corporate governance. Relative to other firms, labor-controlled publicly-traded firms deviate more from value maximization, invest less in long-term assets, take fewer risks, grow more slowly, create fewer new jobs, and exhibit lower labor and total factor productivity. We therefore propose that labor uses its corporate governance voice to maximize the combined value of its contractual and residual claims, and that this often pushes corporate policies away from, rather than towards, shareholder value maximization.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11254.

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Date of creation: Apr 2005
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Handle: RePEc:nbr:nberwo:11254

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Find related papers by JEL classification:
G3 - Financial Economics - - Corporate Finance and Governance
J0 - Labor and Demographic Economics - - General

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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.:
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  12. Gordon, Lilli A. & Pound, John, 1990. "ESOPs and corporate control," Journal of Financial Economics, Elsevier, vol. 27(2), pages 525-555, October. [Downloadable!] (restricted)
  13. Beatty, Anne, 1995. "The cash flow and informational effects of employee stock ownership plans," Journal of Financial Economics, Elsevier, vol. 38(2), pages 211-240, June. [Downloadable!] (restricted)
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  1. Renée Adams & Benjamin E. Hermalin & Michael S. Weisbach, 2008. "The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey," NBER Working Papers 14486, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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