Employees in Swedish firms with more than 25 employees have the legal right to choose whether or not to be represented on the company board. However, in a considerable share of Swedish listed firms, this option is not taken advantage of. This paper asks whether differences in firm characteristics explain why employees choose to be represented on some corporate boards but not others. We use a simple framework, based on rational choice by employees eligible to sit on the board. To test our hypotheses, we estimate a regression model on a sample of 226 listed non-financial Swedish firms in 2001–2007. The results are broadly in line with our predictions. We find no indication that employee board representation impacts firm performance positively or negatively. The main driver of employee board representation is the number of eligible employees. Furthermore, we find that the likelihood of employee board representation decreases with i) firm risk, ii) slow growth, and iii) internationalization. We conclude that when the right for employees to be represented on the board is granted in law a simple model based on individual utility maximization by eligible individuals will contribute to explaining why the right is used in some firms and not in others.
|Peer-reviewed scientific journal||Multinational Finance Journal|
|Publication status||Published - 22.02.2017|
|MoE publication type||A1 Journal article - refereed|
- 512 Business and Management
- Employee representation
- board structure