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Mandatory Worker Representation on the Board and Its Effect on Shareholder Wealth
Author(s) -
Petry Stefan
Publication year - 2017
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12181
Subject(s) - mandate , corporate governance , shareholder , equity (law) , business , representation (politics) , accounting , german , control (management) , shareholder value , monetary economics , finance , economics , law , management , political science , archaeology , politics , history
Several countries legally mandate representation of workers on boards of directors. The evidence on the shareholder wealth effects of such a corporate governance design is mixed. I examine abnormal announcement returns around major milestones leading to the passing of the German Codetermination Act in 1976. I find that news about the act causes an average decline in the equity value of firms that are certain to have been affected by the new law of up to 1.5% relative to the control firms. Firms close to the regulatory threshold of 2,000 employees remain unaffected implying an expectation of avoiding compliance.