Firm Democracy: its empirical relevance and a new way to measure it.

Details

Supervisors

Ferreras, Isabelle

Faculty

Faculté des sciences économiques, sociales, politiques et de communication

Degree label

Master [120] en sciences économiques, orientation générale, à finalité spécialisée

Abstract

The academic community, and society more broadly, would benefit from a substantial understanding of the empirical importance of firm democracy for a wide variety of broader societal outcomes, especially as we increasingly consider firm performance to be multidimensional (i.e., going beyond economic aims). The first part of this thesis (Part I) will therefore aim to provide an overview of the empirical relationships that have been found (or not) between different types of institutional designs of firm democracy and the performance of firms at the economic, social, and environmental levels. This will show that democratisation is an empirically very relevant topic to assess for firms. The next two parts of the thesis will turn towards the challenge of measuring firm democratisation. In Part II I shall turn to the ways we measure firm performance and will focus on the ESG Ratings which are the most widely used ratings measuring firm non-financial performance (covering their environmental, social and governance-related dimensions, hence the structure of firm government and potential democratisation as well). I will show that ESG ratings, though very prevalent around the world to assess the non-financial performance of firms, are very ill-suited to support any measurement of firm democracy. Based on the empirical findings coming from the economic literature in Part I, (i.e. democratic governance significantly impacts firm (non-)financial performance), and the limitations highlighted in Part II (i.e., currently used measures are ill-suited to quantify democratic governance and other non-financial factors), the question becomes: How can we address the need of measuring the firm performance at the Democracy level, as well as the impact of types of firm democracies on other societal factors. The vacuum in the current literature has prompted me to attempt the construction of an index of firm democracy to enable its measurement.