Employee Ownership, Board Representation, and Corporate Financial Policies

43 Pages Posted: 27 Aug 2008 Last revised: 17 Jun 2015

See all articles by William L. Megginson

William L. Megginson

University of Oklahoma

Edith Ginglinger

Université Paris-Dauphine, PSL Research University

Timothée Waxin

Fédération Bancaire Française

Multiple version iconThere are 2 versions of this paper

Date Written: January 10, 2009

Abstract

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 Soci¿t¿ des Bourses Fran¿aises (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.

Keywords: Employee Ownership, Payout Policy, Privatization, Corporate Boards

JEL Classification: G32, G35, G38, J54, J83

Suggested Citation

Megginson, William L. and Ginglinger, Edith and Waxin, Timothée, Employee Ownership, Board Representation, and Corporate Financial Policies (January 10, 2009). 21st Australasian Finance and Banking Conference 2008 Paper. Available at SSRN: https://ssrn.com/abstract=1259609 or http://dx.doi.org/10.2139/ssrn.1259609

William L. Megginson (Contact Author)

University of Oklahoma ( email )

307 W Brooks, 205A Adams Hall
Norman, OK 73019
United States
(405) 325-2058 (Phone)
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HOME PAGE: http://faculty-staff.ou.edu/M/William.L.Megginson-

Edith Ginglinger

Université Paris-Dauphine, PSL Research University ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

Timothée Waxin

Fédération Bancaire Française ( email )

18 rue La Fayette
Paris, 75009
France

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