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

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