Frank A. Schmid

CAPITAL, LABOR, AND THE FIRM: A STUDY OF GERMAN CODETERMINATION

Under the German corporate governance system of codetermination, employees are legally allocated control rights over corporate assets through seats on the supervisory board-that is, the board of nonexecutive directors. The supervisory board oversees the management board-the board of executive directors-approves or rejects its decisions, and appoints its members and sets their salaries.We empirically investigate the implications of this sort of labor participation in corporate decision making. We find that companies with equal representation of employees and shareholders on the supervisory board trade at a 31% stock market discount as compared with companies where employee representatives fill only one-third of the supervisory board seats. We show that under equal representation, management board compensation provides incentives that are not conducive to furthering shareholders interests, possibly because labor maximizes a different objective function than shareholders. We document that, under equal representation, companies have longer payrolls than their one-third representation peers have. Finally, we provide evidence that shareholders respond to the allocation of control rights to labor by linking supervisory board compensation to firm performance and by leveraging up the firm. (JEL: G32, G34) Copyright (c) 2004 by the European Economic Association.

Corporate governance, ownership dispersion and efficiency: Empirical evidence from Austrian cooperative banking

Abstract The ownership structures of firms are endogenous. This makes it difficult to produce direct evidence on the Berle and Means [Berle, A.A., Means, G.C., 1932. The Modern Corporation and Private Property, New York.] hypothesis that corporate governance becomes less efficient as the degree of separation of ownership and control increases. We address this issue by studying Austrian cooperative banking, an organizational form in which the ownership structure is exogenous. We show that firm performance declines as the number of cooperative members increases, corresponding to a greater separation of ownership and control. We also provide direct evidence on another theory that is difficult to test, namely, the efficiency wage hypothesis. We show that the decline in firm performance as the number of shareholders increases is due to an increase in efficiency wages.

Workplace Injuries and Job Flows

The time series properties of the growth rates of BLS (Bureau of Labor Statistics) workplace injury and illness incidence rates are analyzed for manufacturing (1927-2007) and all private industry (1973-2007). These growth rates exhibit a negative (time varying) mean and a pro cyclical response to variations in economic activity, as they decline in recessions before rebounding (and overshooting) during economic recoveries. Using a structural time series model, it is shown that this business cycle behavior is driven by job flows. In recessions, the acceleration of job destruction increases the growth rate of workplace injury and illness incidence rate (which is indicative of moral hazard), while the slowdown in job creation depresses this growth rate by reducing the proportion of workers of short job tenure with the current employer. On net, the effect of job creation dominates quantitatively, thus generating the observed pro cyclical behavior of the growth rate of workplace injury and illness incidence rates.

Robust Loss Development Using MCMC

A Bayesian model of developing aggregate loss triangles in property casualty insurance is introduced. This model makes use of a heteroskedastic and skewed t-likelihood with endogenous degrees of freedom, employs model averaging by means of Reversible Jump MCMC, and accommodates a structural break in the consumption path. Further, the model is capable of incorporating expert information in the calendar year effect. The model, which has been compiled into the R package lossDev, is applied to two widely studied General Liability and Auto Bodily Injury Liability loss triangles.

Claim Severities, Claim Relativities, and Age: Evidence from SOA Group Health Data

The influence of age on Group Health medical claims is analyzed for a large data set provided by the Society of Actuaries. This data set comprises claims for the years 1997 through 1999, with a total claim count of about 4.3 million and total paid charges of approximately

Class Struggle Inside the Firm: A Study of German Codetermination

7 billion. Using partial linear models that allow for the influence of age to be nonlinear, it is shown how age affects claim severities and claim relativities (defined as the proportions of claimants by diagnostic category). The claim severity model uses quantile smoothing with total variation regularization in the nonparametric component. The claim relativities approach rests on a multinomial logit model with a random-walk smoother. The findings show that the influence of age on claim severities is log-linear within an age bracket that ranges from the early twenties to the early sixties; the effect of age on claim relativities is highly nonlinear.