The causal effect of corporate governance on employee satisfaction

Abstract

We investigate the causal effect of increasing shareholder rights on employee satisfaction. To ensure causality, we use close shareholder votes on antitakeover provisions included in the Entrenchment Index (E-Index) as exogenous shocks to the corporate governance of a company. A 1-point increase in shareholder rights on the E-Index scale causes a 10% decrease in employee satisfaction. The channels that drive our results are decreases in employees' opinion about firm culture, in their view about the company's CEO, in the number of employees, and in capital expenditures.