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| Author: | Gorton, G. Schmid, F.A. |
| Title: | Capital, labor, and the firm: A study of German codetermination |
| Journal: | Journal of the European Economic Association
2004 : SEP, VOL. 2:5, p. 863-905 |
| Index terms: | Management Industrial relations Decision making Co-determination Employees Worker participation Companies Stock markets Germany |
| Language: | eng |
| Abstract: | Under the German corporate governance system of codetermination, employees are legally allocated control rights over corporate assets through seats on the supervisory board, that is, the board of non-executive directors (henceforth as: spr-brd.). The spr-brd. oversees the management board (here as: mgm-brd.), that is, the board of executive directors, approves or rejects its decisions, and appoints its members and sets their salaries. This paper empirically investigates the implications of this sort of labour participation in corporate decision making. It is found that companies with equal representation of employees (here as: eq-repr.) and shareholders on the spr-brd. trade at a 31 percent stock market discount as compared with companies where employee representatives fill only one-third of the spr-brd. seats. It is shown that under eq-repr., mgm-brd. compensation provides incentives that are not conducive to furthering shareholdersÂ’ interests. It is documented that, under eq-repr., companies have longer payrolls than their one-third representation peers have. |
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