When Labor Has a Voice in Corporate Governance

Posted: 26 May 2013 Last revised: 30 May 2013

See all articles by Olubunmi Faleye

Olubunmi Faleye

Northeastern University - Finance Group

Vikas Mehrotra

University of Alberta - Department of Finance and Statistical Analysis

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Multiple version iconThere are 3 versions of this paper

Date Written: June 23, 2005

Abstract

Equity ownership gives labor both a fractional stake in a firm’s residual cash flows and a voice in corporate governance. Relative to other firms, labor-controlled publicly traded firms deviate more from value maximization, invest less in long-term assets, take fewer risks, grow more slowly, create fewer new jobs, and exhibit lower labor and total factor productivity. Therefore, we propose that labor uses its corporate governance voice to maximize the combined value of its contractual and residual claims, and that this often pushes corporate policies away from, rather than toward, shareholder value maximization.

Suggested Citation

Faleye, Olubunmi and Mehrotra, Vikas and Morck, Randall K., When Labor Has a Voice in Corporate Governance (June 23, 2005). Journal of Financial and Quantitative Analysis (JFQA), Vol. 41, No. 3, 2006; University of Alberta School of Business Research Paper No. 2013-221. Available at SSRN: https://ssrn.com/abstract=2269260

Olubunmi Faleye

Northeastern University - Finance Group ( email )

Boston, MA 02115
United States

Vikas Mehrotra (Contact Author)

University of Alberta - Department of Finance and Statistical Analysis ( email )

School of Business
University of Alberta
Edmonton, Alberta T6G 2R6
Canada
780-492-2976 (Phone)
780-492-3325 (Fax)

Randall K. Morck

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-5683 (Phone)
780-492-3325 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governence Institute ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Asian Bureau of Finance and Economic Research ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

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