Academic journal article Management Revue

Are Firms with Financial Participation of Employees Better off in a Crisis?: Evidence from the IAB Establishment Panel Survey **

Academic journal article Management Revue

Are Firms with Financial Participation of Employees Better off in a Crisis?: Evidence from the IAB Establishment Panel Survey **

Article excerpt

1. Introduction

As the Great Recession of 2008/2009 hit many countries all over the world, including Germany, many firms were confronted with both a decrease of product demands and financial distress. Therefore, in this situation firms which had already implemented financial participation of employees (FPE) can be regarded to have an advantage. However, because of the severity of the crisis the German government as well as other European institutions like the European Central Bank adopted bundles of measures to sustain the banks' and firms' financial stability. Likewise companies deployed several instruments in order to increase the working-time flexibility of their employees and to reduce their working time. Thus, this paper is going to investigate whether not only firms with FPE, but also other firms could overcome the precarious situation (Möller, 2010). In this article we focus on the employment stabilizing function of FPE in order to save human capital, which is important for firms managing precarious situations. The rest of this article is organised as follows: In the next chapter we are going to present the background, theoretical considerations, and related research. The third chapter is devoted to our empirical analyses and the fourth chapter concludes our study.

2. Background, theoretical considerations and related research

During an economic crisis firms are forced to consider their expenditures. Particularly, they have to rethink their payroll costs, in many cases with consequences for the workforce. Against this background some experts regard financial participation of employees as a chance for certain firms to manage the bad economic situation at this time. Mainly two arguments of financial participation of employees in economically rough times were discussed: Firstly, the liquidity saving function of FPE (Gilbert, Buxton, Golden, & Ryan, 2009; Hammer & Prähauser, 2010; Leuner, 2009). And secondly, the effect of FPE on employment stability and its implications to keep employees within the firm to retain their human capital (Azfar & Danninger, 2001; Gielen, 2011; Green & Heywood, 2011; Bellmann & Möller, 2010).

According to the first argument FPE and especially ESO may be crucial for firms with liquidity shortages for re-financing. Employees accept wage sacrifice - by means of wage reductions - abstain from contractual wage increases, particular special bonus payments or re-invest not-distributed earnings of profit sharing. Firms' financial status may be improved by the increase of the liable capital stock. Thereby, the investments necessary to compete with other companies can be financed - also by means of lower interest rates when it comes e.g. to bank loans (Leuner, 2009). The employees do not merely gain through the maintenance of their jobs but also by a higher income in economically better times (Apitzsch, 2009). Thus, financial participation of employees can be regarded as a suitable institution of recapitalization as they are interested in a sustainable development of the firm (in contrast to some external investors, which sometimes pursue different aims with takeovers of firms). To sum up, the literature suggests that firms in crisis situations (especially liquidity shortages) are better off when employees support the firm via financial participation.

The second rationale, the employment effect and its implications for saving human capital, we are going to examine in this article. For firms the personnel is crucial for success und prosperity in the modern economic world. A skilled labour force is a prerequisite for economic growth and survival. Guest, Michie, Conway, Sheehan, (2003) pronounce the increasing importance of human resources as a key to competitive advantage and business success. The demand of highly qualified employees is prevalent in almost all industry sectors, not just in the IT-sector, where skill shortages are most evident. Hence, for firms it is essential to retain skilled labour and attract potential skilled labour. …

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