The Causal Effect of Corporate Governance on Employee Satisfaction

Abstract

We investigate whether an increase in shareholder rights has a causal effect on employee satisfaction. To ensure causality, we use close shareholder votes on anti-takeover provisions included in the Entrenchment Index (E-Index) by Bebchuk et al. (2009) as exogenous shocks to the corporate governance of a company. An increase in shareholder rights by one point on the scale of the E-Index causes lower employee satisfaction of approximately 10%. We identify decreases in the employee’s opinion on firm culture, their view about the company's CEO, the number of employees, and the capital expenditures as channels that drive our results.