团队

We examine how parity employee representation (PER) on corporate boards affects firms’ capital investments. In Germany, PER is legally mandated for firms with more than 2,000 domestic employees, but not for those below this threshold. Exploiting this discontinuity, we show that PER has heterogeneous effects on firms operating in diverse environments. For firms experiencing positive growth, PER increases their responsiveness to investment opportunities, suggesting that employee participation increases firms’ ability to exploit growth options. The effect through growth options is particularly salient in situations in which growth options are highly valuable. In contrast, for firms experiencing negative growth, PER reduces investment responsiveness, suggesting that employees resist the exercise of abandonment options. This effect is more pronounced in firms with high labor intensity, in which employees are likely to have a strong voice. Furthermore, operational risk moderates the effects of employee representation––the positive effect through growth options is attenuated in high-risk firms and the negative effect through abandonment options is exacerbated, thereby suggesting that employee board representatives are less interested in pursuing growth where businesses are relatively risky, and they protect their constituents more forcefully in high-risk environments. Moreover, the positive effect of PER on exploiting growth options is attenuated by collective bargaining agreements, while its effect through abandonment options is little affected. Evidence from stock price behavior further supports the viewpoint that employee representation affects capital investment. Our findings are relevant to policymakers as well as to firms’ various stakeholders.

Product price risk is a potentially important factor for firms’ liquidity management. A natural place to evaluate the impact of this risk on liquidity management is the electricity industry, because producing firms face substantial price volatility in wholesale markets. Empirically, higher volatility of electricity prices leads to an increase in cash holdings, and this effect is robust to instrumenting for price risk using weather volatility. Cash increases more with price risk in firms using inflexible production technologies and those that cannot easily hedge electricity prices, indicating that operating flexibility and hedging are substitutes for liquidity management.