Banks and Labor As Stakeholders: Impacton Economic Performance

Abstract

The US banking sector was deregulated and US workers gained statuary basic protections between the early-1970s and the mid-1990s. The finance and labor literatures have largely studied the effects of these two reforms on productive activity separately. Yet they only have separable impacts under classical production theories, i.e., without frictions and ignoring how multiple stakeholders affect firms’ governance. Jointly estimating effects, we find that interactions between the two reforms matter for real economic activity, with effects especially large for industries dependent on external finance and knowledge. Results support a stakeholder view of corporate governance and suggest specific candidate underlying theories.