Do controlling shareholders expropriate employees? Evidence from workplace fatalities in China

Abstract

We investigate whether controlling shareholders may expropriate employees for their private benefits in the case of workplace accidents. Using a sample of China's non-state-owned listed firms in industries with high workplace safety hazards during 2008–2016, we find that the expropriation incentives of controlling shareholders, as measured by the separation of control and cash flow rights of controlling shareholders, are positively related to workplace fatalities due to accidents. We check the robustness of this finding against the endogeneity problem by employing the first-difference estimator model, an exogenous shock, and the propensity score matching (PSM) approach. Furthermore, we show that the positive relation between expropriation incentives and workplace fatalities is more pronounced for firms with weaker corporate governance, firms facing more severe financial constraints, firms suffering from stronger expropriation problems, and firms with lower perceived costs. Finally, firms exhibiting stronger expropriation motivations from controlling shareholders perform worse after workplace safety accidents with employee deaths. Overall, we suggest that controlling shareholders expropriate the interests of employees, which has considerably adverse impacts on employees and firms.