Does codetermination reduce shareholder value? Board-level employee representation, firms’ market value, and operational performance

26 Pages Posted: 19 Nov 2020 Last revised: 31 Mar 2022

See all articles by Marc Eulerich

Marc Eulerich

University of Duisburg-Essen, Mercator School of Management

Benjamin Fligge

University of Duisburg-Essen, Mercator School of Management

Andy Imdieke

University of Notre Dame - Mendoza College of Business

Date Written: November 12, 2020

Abstract

We analyze the relationship between board-level codetermination and shareholder value. We use a unique dataset of listed German companies that enables us to identify heterogeneous aspects of codetermination and overcome otherwise common identification issues. We find that codetermination reduces firms’ market value but does not have a corresponding negative effect on firm operating performance. However, we find that employees of codetermined firms are able to positively affect employee wages and employee count while negatively affecting dividends paid to shareholders, thus providing some justification for the observed decrease in perceived market value. These results are mitigated by the presence of strong shareholder monitors. Our findings highlight how heterogeneity of firms’ governance structures can result in tradeoffs in economic outcomes that are a function of the structure’s economic characteristics. This study should be of interest for policy makers concerned about the potential economic consequences of codetermination.

Keywords: Codetermination, Performance, Market Valuation, Diversification

JEL Classification: G30, J53, L25

Suggested Citation

Eulerich, Marc and Fligge, Benjamin and Imdieke, Andy, Does codetermination reduce shareholder value? Board-level employee representation, firms’ market value, and operational performance (November 12, 2020). Available at SSRN: https://ssrn.com/abstract=3729150 or http://dx.doi.org/10.2139/ssrn.3729150

Marc Eulerich

University of Duisburg-Essen, Mercator School of Management ( email )

Lotharstrasse 65
Duisburg, 47057
Germany
00492033792600 (Phone)

HOME PAGE: http://www.msm.uni-due.de/ircg

Benjamin Fligge (Contact Author)

University of Duisburg-Essen, Mercator School of Management ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

Andy Imdieke

University of Notre Dame - Mendoza College of Business ( email )

Notre Dame, IN 46556-5646
United States

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