Employee Co-determination of German Private Companies: Smooth Earnings as a Job Protection Instrument?


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Abstract

This study investigates the influence of employee participation on supervisory boards on firms’ earnings patterns. Attributable to legal requirements, employees obtain up to half the seats on the supervisory boards of German firms. Supervisory boards control management and thus financial reporting. The results of this paper contribute to literature for several reasons. Employees seemingly view smooth company income as a job protection device. Co-determined supervisory boards exhibit a significantly positive relationship with income smoothing. The positive association increases with higher degrees of co-determination.