Labor Representation in Governance as an Insurance Mechanism

Review of Finance, Vol. 22, Issue 4, pp. 1251-1289, 2018

European Corporate Governance Institute (ECGI) - Finance Working Paper No. 411/2014

78 Pages Posted: 22 Feb 2014 Last revised: 17 Dec 2019

See all articles by E. Han Kim

E. Han Kim

University of Michigan, Stephen M. Ross School of Business

Ernst G. Maug

University of Mannheim Business School; European Corporate Governance Institute (ECGI)

Christoph Schneider

Tilburg University - Department of Finance

Date Written: May 20, 2018

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.

Keywords: Risk-sharing, Employment insurance, Worker representation on corporate boards

JEL Classification: J59, G34, G38

Suggested Citation

Kim, E. Han and Maug, Ernst G. and Schneider, Christoph, Labor Representation in Governance as an Insurance Mechanism (May 20, 2018). Review of Finance, Vol. 22, Issue 4, pp. 1251-1289, 2018, European Corporate Governance Institute (ECGI) - Finance Working Paper No. 411/2014, Available at SSRN: https://ssrn.com/abstract=2399399 or http://dx.doi.org/10.2139/ssrn.2399399

E. Han Kim (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-764-2282 (Phone)
734-763-3117 (Fax)

Ernst G. Maug

University of Mannheim Business School ( email )

L9, 1-2
Mannheim, 68131
Germany
+49 621 181-1952 (Phone)

HOME PAGE: http://cf.bwl.uni-mannheim.de/de/people/maug/

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Christoph Schneider

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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