Does Board-level Employee Representation Impact Firms’ Value? Evidence from the European Countries

Journal of Financial Regulation and Compliance, Forthcoming

Posted: 24 Mar 2022

See all articles by Ricardo B. Machado

Ricardo B. Machado

ISCAP - Porto Accounting and Business School; UNIAG - Applied Management Research Unit

Armando Silva

ISCAP; Universidade do Porto - CEF.UP - Center for Economics and Finance at UP

Sónia Silva

University of Minho - School of Economics and Management

Date Written: March 11, 2021

Abstract

Purpose – Using, for the first time, a sample of European listed firms from 30 countries with different legal regimes of board-level employee representation (BLER), the purpose of this paper is to examine the impact of BLER on firms’ value of European public companies, where employee representation is voluntary or imposed by law depending on the country of origin.
Design/methodology/approach – Using a difference-in-differences approach and a matching procedure, the authors analyze the impact of BLER on firms’ value.

Findings – The results of this paper suggest that BLER adopted voluntarily affects positively firms’ value comparing to a group of firms where employee representation is in some way mandatory. Moreover, the findings of this paper show that firms from countries where BLER is not imposed by law tend to pay higher dividends. Nevertheless, the evidence presented in this paper only holds for low levels of employee representation on the board.

Research limitations/implications – This research not only provides some evidence in favor of the codetermination on corporate governance but also offers new avenues for discussing the conditions necessary for codetermination to be effective, especially the level of employees’ participation on board.

Practical implications – This study provides to policymakers new insights for them to gain perspective, analyze and decide if codetermination is a useful tool to improve firms’ performance or at least in what conditions it should be applied.

Social implications – This study incentives the discussion of the proper way to include workers in firms’ boards with expected benefits on firms’ performance, economies and societies.

Originality/value – This paper provides evidence of a positive (but limited) impact on firms’ value derived from voluntary codetermination.

Keywords: Board-level employee representation; European listed firms; Tobin’s Q; Payout Policy

JEL Classification: F30; G15; G30; G34; G38

Suggested Citation

Machado, Ricardo B. and Silva, Armando and Silva, Sónia, Does Board-level Employee Representation Impact Firms’ Value? Evidence from the European Countries (March 11, 2021). Journal of Financial Regulation and Compliance, Forthcoming , Available at SSRN: https://ssrn.com/abstract=3769275

Ricardo B. Machado

ISCAP - Porto Accounting and Business School ( email )

Rua Jaime Lopes Amorim
Matosinhos, Porto 4465-004
Portugal

HOME PAGE: http://www.iscap.ipp.pt

UNIAG - Applied Management Research Unit ( email )

Rua Dr. Roberto Frias, 712
Porto, 4200-465
Portugal
+351225571000 (Phone)
4200-465 (Fax)

HOME PAGE: http://uniag.ipb.pt/

Universidade do Porto - CEF.UP - Center for Economics and Finance at UP ( email )

Rua Dr. Roberto Frias
Porto, 4200-464
Portugal

Sónia Silva

University of Minho - School of Economics and Management ( email )

Campus de Gualtar
Braga, 4710
Portugal

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