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Employee ownership, board representation, and corporate financial policies

Author

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

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.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:corfin:v:17:y:2011:i:4:p:868-887
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    3. Nicolas Aubert, 2016. "Does the Catering Theory of Dividend Apply to the French Listed Firms?," Bankers, Markets & Investors, ESKA Publishing, issue 145, pages 27-38, November-.
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    20. 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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    23. Forcillo, Donato, 2017. "Codetermination: the Presence of Workers on the Board. A Depth Analysis," MPRA Paper 81936, University Library of Munich, Germany.

    More about this item

    Keywords

    Employee ownership Payout policy Privatization Corporate boards;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms
    • J83 - Labor and Demographic Economics - - Labor Standards - - - Workers' Rights

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