Mandatory Worker Representation on the Board and Its Effect on Shareholder Wealth

Financial Management, Forthcoming

70 Pages Posted: 8 Apr 2014 Last revised: 14 Jun 2017

See all articles by Stefan Petry

Stefan Petry

University of Manchester - Alliance Manchester Business School

Date Written: April 5, 2017

Abstract

Several countries legally mandate representation of workers on boards of directors. The evidence on the shareholder wealth effects of such a corporate governance design is mixed. I examine abnormal announcement returns around major milestones leading to the passing of the German Codetermination Act in 1976. I find that news about the act causes an average decline in the equity value of firms that are certain to have been affected by the new law of up to 1.5% relative to the control firms. Firms close to the regulatory threshold of 2,000 employees remain unaffected implying an expectation of avoiding compliance.

Keywords: Corporate governance, Board composition, Codetermination, Employee participation, Germany

JEL Classification: G3, G38, J53, K22, L51

Suggested Citation

Petry, Stefan, Mandatory Worker Representation on the Board and Its Effect on Shareholder Wealth (April 5, 2017). Financial Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2421061 or http://dx.doi.org/10.2139/ssrn.2421061

Stefan Petry (Contact Author)

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

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