Mikko Mäkinen

Financial participation in Finland: incidence and determinants

In this paper, we provide the first comprehensive analysis of financial participation in Finnish manufacturing companies. Compared to many developed economies, the incidence of profit sharing in Finland is found to be relatively high. Cash-based profit-sharing (CPS) scheme is the most commonly used method of financial participation, and around 40% of manufacturing companies had them in 2005. Share-based schemes and personnel funds are much less common. Moreover, CPS schemes were growing fast in the early 2000s, while the number of other forms of financial participation had stagnated. In analysing the determinants of financial participation, stakeholder ownership stands out. Firms that are owned by the state or co-operatives have over a 90% likelihood of having financial participation schemes, whereas the likelihood for other firms is only around 40%. Firms mainly owned by management are less likely to offer financial participation. The evidence of complementarities with other management practices is fairly weak, although there is some evidence that higher levels of workplace training and higher computer use are associated with higher levels of financial participation.

Complementarities between Employee Involvement and Financial Participation

The authors investigate whether productivity is greater if firms use employee involvement (EI) in decision making and financial participation (FP) as complementary practices. Based on representative panel data from Finnish manufacturing firms, the study uses diverse specifications to examine different theoretical explanations of the productivity effects of complementarities. The authors find virtually no evidence to support the theory of complementarities when EI and FP are simply measured by their incidence. They do find some evidence for complementarities using cross-sectional data (controlling for several covariates that related work has found to be important for firm performance) and also when analyses use measures of the intensity of FP. In accounting for differences in empirical findings across varying settings, the findings suggest that outcomes depend on the institutional context and are sensitive to variation in measurement and analytical methods.