When labor representatives join supervisory boards: empirical evidence of the relationship between the change to parity codetermination and working capital and operating cash flows

Kerstin Lopatta (), Katarina Böttcher () and Reemda Jaeschke ()
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Kerstin Lopatta: Carl von Ossietzky University Oldenburg
Katarina Böttcher: Carl von Ossietzky University Oldenburg
Reemda Jaeschke: Carl von Ossietzky University Oldenburg

Journal of Business Economics, 2018, vol. 88, issue 1, No 1, 39 pages

Abstract: Abstract We examine how the change to 50% labor representation on German supervisory boards is related to working capital and operating cash flows, since both are proxies for short-term financial policies. We expect the change to be associated with reduced working capital and increased operating cash flows. Using a difference-in-differences model, we compare a sample of listed and non-listed firms that changed to parity codetermination between 1987 and 2014 with two different groups of control firms that did not change their level of codetermination. In line with our hypotheses, the results suggest that a change to parity codetermination is related to lower working capital and higher operating cash flows compared to our control firms. We conclude that firms begin to engage in more efficient working capital management due to the change to parity codetermination on supervisory boards. We also conclude that the positive short-term effects on the firms’ operating performance imply that labor representatives do not bear just the interests of employees in mind, but also those of other stakeholders.

Keywords: Parity codetermination; Operating cash flows; Supervisory board; Working capital (search for similar items in EconPapers)
JEL-codes: C21 J53 M21 M48 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11573-017-0860-x

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