Financial participation in Finland: incidence and determinants

Abstract

In this paper, we provide the first comprehensive analysis of financial participation in Finnish manufacturing companies. Compared to many developed economies, the incidence of profit sharing in Finland is found to be relatively high. Cash-based profit-sharing (CPS) scheme is the most commonly used method of financial participation, and around 40% of manufacturing companies had them in 2005. Share-based schemes and personnel funds are much less common. Moreover, CPS schemes were growing fast in the early 2000s, while the number of other forms of financial participation had stagnated. In analysing the determinants of financial participation, stakeholder ownership stands out. Firms that are owned by the state or co-operatives have over a 90% likelihood of having financial participation schemes, whereas the likelihood for other firms is only around 40%. Firms mainly owned by management are less likely to offer financial participation. The evidence of complementarities with other management practices is fairly weak, although there is some evidence that higher levels of workplace training and higher computer use are associated with higher levels of financial participation.

Keywords:

• employee ownership
• financial participation
• Finland
• profit-sharing
• stakeholder ownership

Acknowledgements

We are grateful to the Academy of Finland (Grants 206027 and 120234) and the Finnish Work Environment Fund (Grants 103313 and 108708) for financial support, and to Antti Kauhanen and two anonymous referees for their useful comments.

Notes

 1. For a closer description on personnel funds, see Sweins et al. (2009).

 2. The Confederation of Finnish Industries announced in 2008 that they were giving up centralized bargaining and that, henceforth, wage negotiations would take place at the sectoral level. However, our data are for a period before 2005 that clearly still belonged to the era of centralized bargaining.

 3. Trade union attitudes towards different forms of financial participation are discussed in Kalmi (2005).

 4. The corporate governance principles of the Finnish government can found in English at http://www.valtionomistus.fi/omistajapolitiikka_ja_ohjaus/omistajapolitiikka/en.jsp.

 5. The potential importance of the identity of owners for economic behaviour has been recognized in other areas. This is especially apparent in transition economics where a vast theoretical and empirical literature has appeared to investigate diverse issues surrounding the impact of firms with diverse forms of ownership. See, for example, Estrin, Hanousek, Kocenda and Svejnar (2009).

 6. Co-operatives owned by agricultural producers should be clearly differentiated from co-operatives owned by their employees (worker co-operatives). The latter is themselves a form of financial participation. Worker co-operatives are virtually non-existent in the Finnish manufacturing sector, and therefore they are not discussed in this paper.

 7. Bloom and van Reenen (2007) find that there is a substantial difference between firms that are family-owned but have outsider managers, and family-owned and family-managed firms. Our data do not allow us to make this distinction.

 8. Studies on the use and effects of high-performance work systems in Finland have found no effects from union membership (Kalmi and Kauhanen 2008; Kauhanen 2009).

 9. In the context of financial participation, a focus on companies, rather than establishments, can be justified because establishments that do not have shares or do not report their profits cannot have their own financial participation schemes.

10. Compared to other countries, including the USA, the incidence of huge firms with business units that have autonomy over some financial participation schemes is relatively rare. Hence, arguably the use of firm- (rather than establishment) level data is subject to far fewer measurement issues than might emerge in studies based on firm-level data elsewhere.

11. This is of course much less than in Jones et al. (2006), but the difference is that they concentrated on listed firms, whereas our data include mostly privately held firms, and stock options are much more common in listed firms.

12. Recall also that our survey is restricted to manufacturing while other surveys sometimes cover a broader range of industries.

13. Unfortunately, more recent figures on the incidence of share schemes in Japanese or Korean unlisted companies are not available.

14. Following the suggestion by a referee, we experimented by looking separately the influence of two components of this index: formal recruitment criteria and development talks. By and large we find results that are similar to the reported results: positive but largely insignificant associations with financial participation.