NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

When Labor Has a Voice in Corporate Governance

Olubunmi Faleye, Vikas Mehrotra, Randall Morck

NBER Working Paper No. 11254
Issued in April 2005
NBER Program(s):   CF   LS

Equity ownership gives labor both a fractional stake in the firm's residual cash flows and a voice in corporate governance. Relative to other firms, labor-controlled publicly-traded firms deviate more from value maximization, invest less in long-term assets, take fewer risks, grow more slowly, create fewer new jobs, and exhibit lower labor and total factor productivity. We therefore propose that labor uses its corporate governance voice to maximize the combined value of its contractual and residual claims, and that this often pushes corporate policies away from, rather than towards, shareholder value maximization.

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Document Object Identifier (DOI): 10.3386/w11254

Published: Faleye, Olubunmi, Vikas Mehrotra and Randall Morck. "When Labor Has A Voice In Corporate Finance," Journal of Financial and Quantitative Analysis, 2006, v41(3,Sep), 489-510. citation courtesy of

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