Working Paper: NBER ID: w11254
Authors: Olubunmi Faleye; Vikas Mehrotra; Randall Morck
Abstract: 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.
Keywords: labor equity ownership; corporate governance; Tobin's Q; investment decisions; productivity
JEL Codes: G3; J0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| labor equity ownership (J54) | corporate governance outcomes (G38) |
| labor-controlled firms (J54) | lower Tobin's Q ratios (R42) |
| labor voice (J89) | lower capital investment rates (G31) |
| labor voice (J89) | lower research and development spending (O32) |
| labor voice (J89) | fewer new jobs (J63) |
| labor voice (J89) | lower labor productivity (J24) |
| labor voice (J89) | total factor productivity (D24) |