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

44 Pages Posted: 19 Nov 2020 Last revised: 9 Jun 2021

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 Managemen

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. Though we do not find a consistent effect of codetermination on net operating performance, we find that employees of codetermination firms are able to extract rents from shareholders via increases in employee wages and count while negatively affecting dividends paid to shareholders. These results are mitigated by the presence of strong shareholder monitors. This study should be of interest for policy makers concerned about the potential economic consequences of codetermination.

Keywords: Codetermination, Performance, Market Value

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 Managemen ( 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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