Employment Adjustment and Controlling-minority Ownership Structures: Providing Evidence for Stewardship Governance

Abstract

This study investigates the influence of controlling-minority ownership structures (CMSes) on the employment adjustment of firms. We propose that entrepreneur-operated CMS firms typically develop a stewardship governance structure, which relies heavily on the social and psychological context of trust between management and employees, and demands employment stability. Accordingly, firms with more deeply ingrained CMSes are expected to have a lower employment adjustment speed. By applying a partial adjustment model to a sample of Taiwanese firms, we show that firms continually adjust to achieve a target employment level. The empirical proxy variables for the extent of CMSes are negatively related to the adjustment speed, particularly among firms with above-target employment or having consecutive periods of loss. Our results are robust after considering the assumption of lump-sum adjustment behavior. (JEL codes: D22, G34, J21)