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The stakeholder view of the firm vs the neoclassical view of the firm as a
profit-maximizer;
Stakeholder view: not only shareholders and managers but also other
stakeholders may play significant roles in the decision-making process
- Theoretical analysis of the stakeholder model Tirole (2001)
- Both theoretical and empirical investigation Blair and Roe (1999)
- Debates on the issue originate in 1976 Drucker
The results of the empirical analysis are consistent with the stakeholder view.
Merge the results of the survey with other company information (ownership
structures, board compositions and financial data)
1.
Survey data at firm-level , the Annual Survey of Corporate Behavior, 2001 =>
perceived excess or shortage of employment, companies which needed to
decrease labour cost and eight measures to do so (reduction in wages or
working hours, layoffs, voluntary retirement, etc.);
2.
3.
For each of the 8 measures below, use a dummy variable which takes value 1 if
the firm has implemented it or will implement it and 0 otherwise:
(1) reduction in bonuses;
(2) reduction in wage rates;
(3) reduction in managers salaries;
(4) reduction in executive payments;
(5) reduction in working hours;
(6) reduction in hiring new employees;
(7) expansion of layoffs; and
(8) introduction of voluntary (early) retirement.
6. Main findings
6. Main findings
The Insider Ratio has a negative effect on the adoption of measures that are
costly for incumbent employees (i.e. bonus reduction, wage reduction) and a
positive effect on measure that are costly for new employees (i.e. reduction
in new hiring).
These results are consistent with the stakeholder view of the firm suggesting
that inside directors are more concerned with protecting the interests of
employees than with profit-maximization as assumed by neoclassical theory.
7. Critique
This is due to the fact that data on employment policy is cross-sectional, plus
it is difficult to find good instruments for board composition;
Firms estimated the gap between the current and the optimal level of
employment; optimal level of employment may be inconsistent among firms.
Conclusions