Mandatory Worker Representation on the Board and Its Effect on Shareholder Wealth

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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.

Bibliographical metadata

Original languageEnglish
Article number2
Pages (from-to)25-54
Number of pages30
JournalFinancial Management
Issue number1
Early online date23 Jul 2017
Publication statusPublished - 1 Mar 2018

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