Employing a unique dataset of Chinese non-listed firms, this paper investigates the effects of the presence of 19 governance structures on 20 employees’ interest indicators. In general, we find that firms with the governance structures pay workers higher hourly wages, require less monthly working hours, and have a smaller chance of wage arrears. Meanwhile, the shares of total wage and welfare expenditures in total sales revenue are lower in these firms, which results in higher profitability. Moreover, firms with the governance structures invest significantly more into training and provide employees with better fringe benefits. Considering the low labor protection standard and the weak external regulations of China’s labor market, we explain the positive findings thusly: corporate governance structures induce managers to adjust wage payments to the “efficiency wage” level, which is the best balance point for the interests of both shareholders and employees and, therefore, for maintaining the stakeholder relationships. We also find the governance structures that give blockholders superpower are negatively associated with employees interests. These results highlight the importance of giving enough discretion to managers in order to successfully find the common ground for creating mutual values for shareholders and employees.
