IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Employee Ownership, Board Representation, and Corporate Financial Policies

  • Edith Ginglinger

    ()

    (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

  • William Megginson

    (Oklahoma University - Oklahoma University)

  • Timothee Waxin

    (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://halshs.archives-ouvertes.fr/halshs-00626310/document
Download Restriction: no

Paper provided by HAL in its series Post-Print with number halshs-00626310.

as
in new window

Length:
Date of creation: 2011
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
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

References listed on IDEAS
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.:

as in new window
  1. E. Han Kim & Paige Ouimet, 2009. "Employee Capitalism or Corporate Socialism? Broad-Based Employee Stock Ownership," Working Papers 09-44, Center for Economic Studies, U.S. Census Bureau.
  2. Andrei Shleifer & Robert W. Vishny, 1996. "A Survey of Corporate Governance," NBER Working Papers 5554, National Bureau of Economic Research, Inc.
  3. Kenichi Ueda & Stijn Claessens, 2008. "Banks and Labor as Stakeholders; Impact on Economic Performance," IMF Working Papers 08/229, International Monetary Fund.
  4. Benjamin E. Hermalin & Michael S. Weisbach, 1996. "Endogenously Chosen Boards of Directors and Their Monitoring of the CEO," Working Papers _004, University of California at Berkeley, Haas School of Business.
  5. Stulz, ReneM., 1988. "Managerial control of voting rights : Financing policies and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 25-54, January.
  6. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
  7. Yi-Tsung Lee & Yu-Jane Liu & Ning Zhu, 2007. "The Cost of Owning Employer Stocks: Lessons From Taiwan," Working Papers, Center for Retirement Research at Boston College wp2007-24, Center for Retirement Research, revised Dec 2007.
  8. Gary Gorton & Frank A. Schmid, 2004. "Capital, Labor, and The Firm: A Study of German Codetermination," Journal of the European Economic Association, MIT Press, vol. 2(5), pages 863-905, 09.
  9. Gorton, Gary & Schmid, Frank A., 2000. "Universal banking and the performance of German firms," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 29-80.
  10. Faleye, Olubunmi & Mehrotra, Vikas & Morck, Randall, 2006. "When Labor Has a Voice in Corporate Governance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(03), pages 489-510, September.
  11. Bertrand, Marianne & Mullainathan, Sendhil, 2003. "Enjoying the Quiet Life? Corporate Governance and Managerial Preferences," Scholarly Articles 3429713, Harvard University Department of Economics.
  12. Jensen, Michael C. & Ruback, Richard S., 1983. "The market for corporate control : The scientific evidence," Journal of Financial Economics, Elsevier, vol. 11(1-4), pages 5-50, April.
  13. Denis, Diane K. & McConnell, John J., 2003. "International Corporate Governance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(01), pages 1-36, March.
  14. Ann B. Gillette & Thomas H. Noe & Michael J. Rebello, 2008. "Board structures around the world: An experimental investigation," OFRC Working Papers Series 2008fe15, Oxford Financial Research Centre.
  15. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
  16. Gordon, Lilli A. & Pound, John, 1990. "ESOPs and corporate control," Journal of Financial Economics, Elsevier, vol. 27(2), pages 525-555, October.
  17. Himmelberg, Charles P. & Hubbard, R. Glenn & Palia, Darius, 1999. "Understanding the determinants of managerial ownership and the link between ownership and performance," Journal of Financial Economics, Elsevier, vol. 53(3), pages 353-384, September.
  18. Franks, Julian & Mayer, Colin, 2001. "Ownership and Control of German Corporations," Review of Financial Studies, Society for Financial Studies, vol. 14(4), pages 943-77.
  19. Tirole, Jean, 2001. "Corporate Governance," Econometrica, Econometric Society, vol. 69(1), pages 1-35, January.
  20. Raheja, Charu G., 2005. "Determinants of Board Size and Composition: A Theory of Corporate Boards," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(02), pages 283-306, June.
  21. Linck, James S. & Netter, Jeffry M. & Yang, Tina, 2008. "The determinants of board structure," Journal of Financial Economics, Elsevier, vol. 87(2), pages 308-328, February.
  22. DeAngelo, Harry & DeAngelo, Linda, 1991. "Union negotiations and corporate policy *1: A study of labor concessions in the domestic steel industry during the 1980s," Journal of Financial Economics, Elsevier, vol. 30(1), pages 3-43, November.
  23. Cronqvist, Henrik & Heyman, Fredrik & Nilsson, Mattias & Svaleryd, Helena & Vlachos, Jonas, 2006. "Do Entrenched Manager Pay Their Workers More?," SIFR Research Report Series 47, Institute for Financial Research.
  24. Scholes, Myron S & Wolfson, Mark A, 1990. "The Effects of Changes in Tax Laws on Corporate Reorganization Activity," The Journal of Business, University of Chicago Press, vol. 63(1), pages S141-64, January.
  25. Pagano, Marco & Volpin, Paolo, 2002. "Managers, Workers and Corporate Control," CEPR Discussion Papers 3649, C.E.P.R. Discussion Papers.
  26. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Agency Problems and Dividend Policies Around the World," Harvard Institute of Economic Research Working Papers 1839, Harvard - Institute of Economic Research.
  27. Larry H. P. Lang & Mara Faccio & Leslie Young, 2001. "Dividends and Expropriation," American Economic Review, American Economic Association, vol. 91(1), pages 54-78, March.
  28. Huafeng (JASON) Chen & Marcin Kacperczyk & Hernán Ortiz-Molina, 2011. "Do Nonfinancial Stakeholders Affect the Pricing of Risky Debt? Evidence from Unionized Workers," Review of Finance, European Finance Association, vol. 16(2), pages 347-383.
  29. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
  30. Fama, Eugene F & Jensen, Michael C, 1983. "Agency Problems and Residual Claims," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 327-49, June.
  31. Richard B. Freeman & Edward P. Lazear, 1995. "An Economic Analysis of Works Councils," NBER Chapters, in: Works Councils: Consultation, Representation, and Cooperation in Industrial Relations, pages 27-52 National Bureau of Economic Research, Inc.
  32. Acharya, Viral V & Myers, Stewart C & Rajan, Raghuram G, 2009. "The Internal Governance of Firms," CEPR Discussion Papers 7210, C.E.P.R. Discussion Papers.
  33. Fauver, Larry & Fuerst, Michael E., 2006. "Does good corporate governance include employee representation? Evidence from German corporate boards," Journal of Financial Economics, Elsevier, vol. 82(3), pages 673-710, December.
  34. Jonathan B. Berk & Richard Stanton & Josef Zechner, 2007. "Human Capital, Bankruptcy and Capital Structure," NBER Working Papers 13014, National Bureau of Economic Research, Inc.
  35. Galai, Dan & Wiener, Zvi, 2008. "Stakeholders and the composition of the voting rights of the board of directors," Journal of Corporate Finance, Elsevier, vol. 14(2), pages 107-117, April.
  36. 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.
  37. Vafeas, Nikos, 1999. "Board meeting frequency and firm performance," Journal of Financial Economics, Elsevier, vol. 53(1), pages 113-142, July.
  38. 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).
  39. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  40. Jensen, Michael C & Meckling, William H, 1979. "Rights and Production Functions: An Application to Labor-managed Firms and Codetermination," The Journal of Business, University of Chicago Press, vol. 52(4), pages 469-506, October.
  41. Skinner, Douglas J., 2008. "The evolving relation between earnings, dividends, and stock repurchases," Journal of Financial Economics, Elsevier, vol. 87(3), pages 582-609, March.
  42. Julian Atanassov & E. Han Kim, 2009. "Labor and Corporate Governance: International Evidence from Restructuring Decisions," Journal of Finance, American Finance Association, vol. 64(1), pages 341-374, 02.
  43. Coles, Jeffrey L. & Daniel, Naveen D. & Naveen, Lalitha, 2008. "Boards: Does one size fit all," Journal of Financial Economics, Elsevier, vol. 87(2), pages 329-356, February.
  44. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  45. von Eije, Henk & Megginson, William L., 2008. "Dividends and share repurchases in the European Union," Journal of Financial Economics, Elsevier, vol. 89(2), pages 347-374, August.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:hal:journl:halshs-00626310. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.