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Employee Ownership, Board Representation, and Corporate Financial Policies

Ginglinger, Edith; Waxin, Timothée; Megginson, William (2009-01), Employee Ownership, Board Representation, and Corporate Financial Policies, FMA Annual Meeting, 2009-10, Reno, États-Unis

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Employee-Ownership.PDF (273.9Kb)
Type
Communication / Conférence
Date
2009-01
Conference title
FMA Annual Meeting
Conference date
2009-10
Conference city
Reno
Conference country
États-Unis
Metadata
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Author(s)
Ginglinger, Edith
Waxin, Timothée
Megginson, William
Abstract (EN)
French law mandates that employees of large publicly listed companies be allowed to elect two types of directors to represent employees. First, partially privatized companies must reserve two or three (depending on board size) board seats for directors elected by employees by right of employment. Second, employee-shareholders in any public company have the right to elect one director whenever they hold at least 3% of outstanding shares. These two rights have engendered substantial employee representation on the boards of over one-quarter of the largest French companies. Using a comprehensive sample of firms in the Société des Bourses Françaises (SBF) 120 Index from 1998 to 2005, 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 unambiguously increase firm valuation and profitability, but do not significantly impact corporate payout (dividends and share repurchases) policy or board organization and performance. Directors elected by employees by right significantly reduce payout ratios, increase overall staff costs, and increase board size, complexity, and meeting frequency—but do not significantly impact firm value or profitability. Employee representation on corporate boards thus appears to be at least value-neutral, and even value-enhancing in the case of directors elected by employee shareholders.
Subjects / Keywords
Employee Ownership; Corporate Boards; Privatization; Payout Policy
JEL
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
G35 - Payout Policy
G38 - Government Policy and Regulation
J54 - Producer Cooperatives; Labor Managed Firms; Employee Ownership
J83 - Workers' Rights

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