Labor and Corporate Governance: International Evidence from Restructuring Decisions



  • E. HAN KIM

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    • Atanassov is with the Lundquist College of Business, University of Oregon, and Kim is with the Ross School of Business, University of Michigan. This paper has benefited greatly by helpful comments and suggestions by Sugato Bhattacharyya, Bhagwan Chowdhry, David Denis, Campbell Harvey (the editor), Timothy Kruse, Rafael La Porta, John McConnell, Adair Morse, Paige Ouimet, Uday Rajan, Amit Seru, Jordan Siegel, Suraj Srinivasan, Jan Svejnar, Paolo Volpin, an anonymous associate editor, an anonymous referee, and participants at the Winter Research Conference at Indian School of Business, Harvard Business School International Research Conference, Zurich Conference on Alternative Views of Corporate Governance, and finance seminars at Duke University, Purdue University, Vanderbilt University, University of Michigan, and University of Texas at San Antonio. We also thank Mitsui Life Financial Research Center for financial support, and Gumwon Hong and Joyce Buchanan for programing and research assistance in obtaining ownership data and for editorial assistance, respectively.


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.