How Labour Power Shapes Corporate Payout Policy
Work forces trying to limit dividends are most successful in nations with broader collective bargaining and effective labour law enforcement
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Existing research shows that corporate payout policies are greatly influenced by the legal protection of shareholders and creditors. Yet in the past, less attention has been paid to labour – another important claimant of companies’ resources.
Workers, who prefer that companies hold on to profits rather than make cash payouts, have great potential to limit rent distribution among shareholders.
“The primary objective of labour is to maximise the present value of their expected future wages and benefits through excess rent extraction,” says Prof. Wu Donghui, Professor of School of Accountancy and Director of Centre for Institutions and Governance at The Chinese University of Hong Kong (CUHK) Business School. Prof. Wu has recently been named by Abacus as the second most prolific author during 1999-2018 period, based on papers on the Chinese capital market published in Tier 1 journals.
His study “Having a Finger in the Pie: Labour Power and Corporate Payout Policy” examines the effect of labour power on business payout policy. With fellow authors at the Texas Christian University, the Hong Kong Baptist University, and the University of Macau, the study utilises data on labour laws with 41,436 firms in 39 countries from 1989 to 2015.
“We show shifts in labour laws governing collective labour relations have a significant impact on corporate payout decisions,” Prof. Wu says. “Basically, legislative changes that strengthen labour power reduce firms’ dividend payments and total payouts.”