Employee Ownership and Firm Disclosure

Abstract

Evidence suggests that managers have an incentive to keep information opaque with the market when negotiating with employees who can extract above-market rents from the firm. We argue that employee ownership should mitigate this incentive to extract above-market rents and, in turn, alleviate the firm’s need to keep information opaque. Consistent with our expectations and using a number of proxies for disclosure, we find that firms whose non-manager employees have strong bargaining power provide less disclosure. However, this effect is mitigated, the greater the equity in company common stock held by non-manager employees. Our results suggest a novel capital market benefit to employee ownership. Specifically, employee ownership for non-manager employees appears to benefit the firm by not only aligning goals between the firm and its employees, but by also increasing disclosure from the firm to all of its stakeholders by mitigating the firm’s need to keep information opaque.

Keywords: Employee Ownership, Employee Bargaining Power, Disclosure, Research Design

JEL Classification: M10, M20, M40, M50, M51, P16, J20, J50, J51, J53, L21, G30