Corporate Finance and Human Capital Risk

• Applicants: Professorin Dr. Britta Gehrke; Professor Dr. Ernst Maug
• Subject Area: Accounting and Finance
• Term: from 2016 to 2022
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 280387323

• Final Report Year: 2023

Final Report Abstract

The project „Corporate Finance and Human Capital Risk“ is at the interface of financial economics and labor economics and asks how corporate transactions affect employees. To answer this question, we have created new data sets for Germany and the Netherlands that combine financial information about firms with establishment-level and employee-level administrative data. These data sets allowed novel insights into how corporate transactions and corporate governance affect employees along a number of dimensions. First, we showed that labor representation on the board of directors provides a credible commitment device to allow risk-sharing between firms and workers. Second, we documented that private equity buyouts are followed by a reduction in employment, an increase in employee turnover, and earnings losses for employees of the buyout targets. Managers and older employees fare worse than the average target employee, suggesting that the most negatively affected are those who are less likely to find a new job, rather than those most likely to lose their jobs. Third, we relate employees’ health to their productivity and the restructuring of the labor force during private equity buyouts. Employees with a worse health status before the buyout face the most substantial losses of income and employment. More than half of this negative effect is buffered by social transfers. We find no evidence that buyouts worsen employees’ health. Fourth, we studied the restructuring of the labor force after mergers and acquisitions by taking a comprehensive view on targets and acquirers. Restructuring is large and implies a net employment decline concentrated in targets. Employee turnover is large, in particular for managers, and occurs through the external labor market. We documented a change in the labor force towards younger and less expensive workers and that mergers create more hierarchical firms with more managers and higher labor productivity. Fifth, we show that business groups in Germany arbitrage labor markets: they systematically move jobs (but not employees) across locations with different labor market conditions (labor costs, skill match of the labor force, labor supply). They do so within the existing group structure, but also adapt the structure of the group itself through affiliations and disaffiliations.

Publications

• Labor Representation in Governance as an Insurance Mechanism, posted in his capacity as editor of the Review of Finance
  Andrew Ellul
  
• Labor Representation in Governance as an Insurance Mechanism,” Harvard Law School Forum on Corporate Governance and Financial Regulation
  E. Han Kim, Ernst Maug & Christoph Schneider
  
• Labor Representation in Governance as an Insurance Mechanism. Review of Finance, 22(4), 1251-1289.
  Kim, E. Han; Maug, Ernst & Schneider, Christoph
  
• Risk-Sharing Between Employers and Employees, Mannheim Business Research Insights 2018/2
  Ernst Maug
  
• Private equity and human capital risk. Journal of Financial Economics, 133(3), 634-657.
  Antoni, Manfred; Maug, Ernst & Obernberger, Stefan
  
• Private Equity Buyouts and Employee Health. SSRN Electronic Journal.
  Garcia, Gomez Pilar; Maug, Ernst G. & Obernberger, Stefan
  
• Post-Merger Restructuring of the Labor Force, ECGI - Finance Working Paper No. 753/2021
  Gehrke, Britta, Ernst Maug, Stefan Obernberger & Christoph Schneider