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Employees on Corporate Boards

Journal article
Authors Tom Berglund
Martin Holmen
Published in Multinational Finance Journal
Volume 20
Issue 3
Pages 237-271
ISSN 1096-1879
Publication year 2016
Published at Department of Economics
Pages 237-271
Language en
Links www.mfsociety.org/modules/modDashbo...
Keywords employee representation, board composition, dependent directors, firm performance, corporate governance.
Subject categories Economics

Abstract

Employees in Swedish firms have the legal right to be represented on the company board. However, in a considerable share of Swedish listed firms, this option is not exercised. This paper asks why that is the case. We use a simple framework, based on rational choice by individual employees. Our sample consists of 226 listed non-financial Swedish firms in 2001-2007. The results are in line with our predictions. Employee board representation does not impact firm performance, neither positively nor negatively. The main driver of employee board representation is the number of eligible employees. Furthermore, employee board representation decreases with firm risk, slow growth, and internationalization. We conclude that when the law grants the right for employees to be represented on the board a simple model based on individual utility maximization provides an explanation for why the right is used in some firms and not in others.

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