Has European Corporatism Delivered? A Survey with Preliminary Evidence

Abstract

The modern stakeholder movement in the U.S. is arguably an attempt to import European corporatism into U.S. corporate practice and public policy. Hence, it is useful to ask (i) do European firms really invest in stakeholder welfare; and (ii) are such investments accomplished at the cost of lower shareholder rights or shareholder value? I survey ESG (environmental, social and governance) related legislative developments in Europe and the related academic literature to hypothesize that better E&S disclosure records in Europe do not compensate for the valuation discount imposed by weaker Gs. I go on to provide preliminary evidence on this hypothesis by focusing on largest 50 public firms in four key European countries (Netherlands, France, Germany and the United Kingdom) matched by industry and market capitalization to a sample of comparable U.S. public firms. These top 50 European firms account for between 72% and 99% of the equity market capitalizations of all domestically incorporated equities in their respective countries. The valuation discount between continental European firms and U.S. firms in Tobin’s Q is correlated with presence of large block holders in European firms. The poorer disclosure record of U.S. firms on the environmental (E) and social (“S”) dimensions of labor is not correlated with this valuation discount. When U.S. firms do disclose E and S information, their track record is no worse than their European counterparts. My data tentatively suggest that poorer G in continental Europe destroys more shareholder value than potentially better E and S disclosure can add.