Labor and Corporate Governance: International Evidence from Restructuring Decisions

Our results highlight the importance of interaction among management, labor, and investors in shaping corporate governance. We find that strong union laws protect not only workers but also underperforming managers. Weak investor protection combined with strong union laws are conducive to worker-mana...

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Bibliographic Details
Published in:The Journal of finance (New York) 2009-02, Vol.64 (1), p.341-374
Main Authors: ATANASSOV, JULIAN, KIM, E. HAN
Format: Article
Language:English
Subjects:
Alliances
Asset management
Business structures
Corporate governance
Dismissals
Finance
Financial analysis
Financial leverage
Financial performance
Financiers
Firm theory
Investors
Labor law
Labor relations
Layoffs
Management
Sales management
Shareholders
Studies
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Summary:Our results highlight the importance of interaction among management, labor, and investors in shaping corporate governance. We find that strong union laws protect not only workers but also underperforming managers. Weak investor protection combined with strong union laws are conducive to worker-management alliances, wherein poorly performing firms sell assets to prevent large-scale layoffs, garnering worker support to retain management. Asset sales in weak investor protection countries lead to further deteriorating performance, whereas in strong investor protection countries they improve performance and lead to more layoffs. Strong union laws are less effective in preventing layoffs when financial leverage is high.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.2008.01436.x