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Labor Representation in Governance as an Insurance Mechanism

Author

Listed:
  • E Han Kim
  • Ernst Maug
  • Christoph Schneider

Abstract

We hypothesize that labor participation in governance helps improve risk sharing between employees and employers. It provides an ex post mechanism to enforce implicit insurance contracts protecting employees against adverse shocks. Results based on German establishment-level data show that skilled employees of firms with 50% labor representation on boards are protected against layoffs during adverse industry shocks. They pay an insurance premium of 3.3% in the form of lower wages. Unskilled blue-collar workers are unprotected against shocks. Our evidence suggests that workers capture all the gains from improved risk sharing, whereas shareholders are no better or worse off than without codetermination.

Suggested Citation

  • E Han Kim & Ernst Maug & Christoph Schneider, 2018. "Labor Representation in Governance as an Insurance Mechanism," Review of Finance, European Finance Association, vol. 22(4), pages 1251-1289.
    • Handle: RePEc:oup:revfin:v:22:y:2018:i:4:p:1251-1289.
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    File URL: http://hdl.handle.net/10.1093/rof/rfy012
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    Citations

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    Cited by:

    1. Matthias Efing & Harald Hau & Patrick Kampkötter & Jean-Charles Rochet, 2018. "Bank Bonus Pay as a Risk Sharing Contract," Swiss Finance Institute Research Paper Series 18-72, Swiss Finance Institute.
    2. Ertugrul, Mine & Marciukaityte, Dalia, 2021. "Labor unions and corporate social responsibility," Journal of Banking & Finance, Elsevier, vol. 125(C).
    3. Kerstin Lopatta & Katarina Böttcher & Sumit K. Lodhia & Sebastian A. Tideman, 2020. "Parity codetermination at the board level and labor investment efficiency: evidence on German listed firms," Journal of Business Economics, Springer, vol. 90(1), pages 57-108, February.
    4. Pagano, Marco, 2020. "Risk Sharing Within the Firm: A Primer," Foundations and Trends(R) in Finance, now publishers, vol. 12(2), pages 117-198, October.
    5. Alexandre Garel & Arthur Petit-Romec, 2021. "Engaging Employees for the Long Run: Long-Term Investors and Employee-Related CSR," Journal of Business Ethics, Springer, vol. 174(1), pages 35-63, November.
    6. Christine Blandhol & Magne Mogstad & Peter Nilsson & Ola L. Vestad, 2020. "Do Employees Benefit from Worker Representation on Corporate Boards?," NBER Working Papers 28269, National Bureau of Economic Research, Inc.
    7. Gregorič, Aleksandra, 2022. "Board-level worker representation," GLO Discussion Paper Series 1136, Global Labor Organization (GLO).
    8. Cristi A. Gleason & Sascha Kieback & Martin Thomsen & Christoph Watrin, 2021. "Monitoring or payroll maximization? What happens when workers enter the boardroom?," Review of Accounting Studies, Springer, vol. 26(3), pages 1046-1087, September.
    9. Belot, François & Waxin, Timothée, 2022. "Mandatory employee board representation: Good news for family firms?," International Review of Law and Economics, Elsevier, vol. 71(C).
    10. Chyz, James A. & Eulerich, Marc & Fligge, Benjamin & Romney, Miles A., 2023. "Codetermination and aggressive reporting: Audit committee employee representation, tax aggressiveness, and earnings management," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 51(C).
    11. Jose Garcia-Louzao & Gabriel Burdin, 2023. "Employee Owned Firms and the Careers of Young Workers," Bank of Lithuania Working Paper Series 113, Bank of Lithuania.
    12. Jasmin Joecks & Kerstin Pull & Katrin Scharfenkamp, 2023. "Women directors and firm innovation: The role of women directors' representative function," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 1203-1214, March.
    13. Qiuyun Wang & Lu Liu, 2022. "Pandemic or panic? A firm-level study on the psychological and industrial impacts of COVID-19 on the Chinese stock market," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-38, December.
    14. Chenyu Shan & Dragon Yongjun Tang, 2023. "The Value of Employee Satisfaction in Disastrous Times: Evidence from COVID-19," Review of Finance, European Finance Association, vol. 27(3), pages 1027-1076.
    15. Pezone, Vincenzo, 2023. "The real effects of judicial enforcement," Other publications TiSEM 08176032-a171-4f23-8dac-e, Tilburg University, School of Economics and Management.
    16. Vincenzo Pezone, 2023. "The Real Effects of Judicial Enforcement," Review of Finance, European Finance Association, vol. 27(3), pages 889-933.
    17. Laszlo Goerke & Nora Paulus, 2024. "Collective Bargaining about Corporate Social Responsibility," IAAEU Discussion Papers 202401, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).

    More about this item

    Keywords

    Risk-sharing; Employment insurance; Worker representation on corporate boards;
    All these keywords.

    JEL classification:

    • J59 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Other
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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