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Employee Ownership, Board Representation, and Corporate Financial Policies

  • Edith Ginglinger

    ()

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

  • William Megginson

    (Oklahoma University - Oklahoma University)

  • Timothee Waxin

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

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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File URL: https://halshs.archives-ouvertes.fr/halshs-00626310/document
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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 in Journal of Corporate Finance, Elsevier, 2011, 17, pp.868-887. <10.1016/j.jcorpfin.2011.03.005>
Handle: RePEc:hal:journl:halshs-00626310
DOI: 10.1016/j.jcorpfin.2011.03.005
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00626310
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