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2010]

The German Supervisory Board on Its Way to Professionalism

147

I. Empirical Evidence on German Codetermination

However, there is little empirical evidence on the efficiency of German codetermination. The problem with studies on that subject is that the laws on codetermination principally apply to all companies depending on their size without any exception. Therefore, it is hard to make a comparison with companies without codetermination. Apart from that, the existing studies draw a heterogeneous picture.

Some studies show a significantly negative effect of German codetermination on share values. In particular, Gary Gorton and Frank A. Schmid find an average 31% stock market discount on firms with equal employee representation compared with one‐third employee representation.143 This finding supports the property rights theory, which argues that codetermination dilutes the property rights of shareholders, because they have to bear all the investment risk, whereas employee representatives participate in the decision‐making process without bearing any economic risk for wrong decisions.144 Approaching this issue differently, Mark J. Roe argues that there is a negative relation between codetermination on the one hand, and the development of capital markets and shareholder protection on the other hand. 145

Other empirical research, such as the study of Larry Fauver and Michael E. Fuerst, arrive at the opposite result. On the basis of the participation theory and a team approach to management, they argue that codetermination increases the firm market value and make the corporate governance system of codetermined companies more effective because of an improved flow of information from the workforce to the supervisory board and positive effects on the motivation of the workforce.146 A majority of other studies simply finds that there is no significantly positive effect of codetermination on share value.147

143 Gary Gorton & Frank A. Schmid, Capital, Labor, and the Firm: A Study of German Codetermination, 2 JOURNAL OF THE EUROPEAN ECONOMIC ASSOCIATION (JEEA) 863‐905 (2004); see further, Oliver Stettes, Unternehmensmitbestimmung in Deutschland – Vorteil oder Ballast im Standortwettbewerb?, 52 AG 611‐618 (2007).

144 See, Rüdiger von Rosen, Kapitalmarkt und Mitbestimmung, in FESTSCHRIFT FÜR EBERHARD SCHWARK, 789, 793‐794 (Stefan Grundmann et al. eds., 2009).

145 Mark J. Roe, German Co‐Determination and German Securities Markets, in COMPARATIVE CORPORATE GOVERNANCE, STATE OF THE ART AND EMERGING RESEARCH 361‐372 (Klaus J. Hopt et al. eds., 1998); MARK J. ROE, POLITICAL DETERMINANTS OF CORPORATE GOVERNANCE: POLITICAL CONTEXT, CORPORATE IMPACT (2003).

146 Larry Fauver & Michael E. Fuerst, Does Good Corporate Governance Include Employee Representation? Evidence from German Corporate Boards, EFA 2004 Maastricht Meetings Paper No. 1171 (2004), available at: http://ssrn.com/abstract=534422, last accessed 23 January 2010; see also v. Rosen (note 144), 794.

147 See, in summary, Dieter Sadowski, Joachim Junkes & Sabine Lindenthal, Gesetzliche Mitbestimmung in Deutschland, 30 ZGR 110, 126‐132 (2001); Frick, Speckbacher & Wentges (note 142), 756‐757; Martin Henssler, Arbeitnehmermitbestimmung im deutschen Gesellschaftsrecht, in UNTERNEHMENS‐MITBESTIMMUNG DER ARBEITNEHMER IM RECHT DER EU‐MITGLIEDSTAATEN, 133, 147‐148 (Theodor Baums & Peter Ulmer eds., 2004).

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