Labor and Corporate Governance: International Evidence from Restructuring Decisions
56 Pages Posted: 27 Apr 2006 Last revised: 17 Jun 2008
Our results highlight the importance of interaction among management, labor, and investors in shaping corporate governance. We find that strong union laws protect not only workers but also underperforming managers. Weak investor protection combined with strong union laws are conducive to worker-management alliances, wherein poorly performing firms sell assets to prevent large scale layoffs, garnering worker support to retain management. Asset sales in weak investor protection countries lead to further deteriorating performance, whereas in strong investor protection countries they improve performance and lead to more layoffs. Strong union laws are less effective in preventing layoffs when financial leverage is high.
Keywords: Labor Laws, Stakeholders, Investor Protection, Management Turnover, Layoffs, Asset Sales, Financial Leverage, Ownership Concentration
JEL Classification: K31, J53, G34, J63, K22
Suggested Citation: Suggested Citation