IDEAS home Printed from https://ideas.repec.org/a/eee/corfin/v69y2021ics0929119921001127.html
   My bibliography  Save this article

Does unionization affect the manager–shareholder conflict? Evidence from firm-specific stock price crash risk

Author

Listed:
  • Kim, Jeong-Bon
  • Zhang, Eliza Xia
  • Zhong, Kai

Abstract

This study examines whether and how labor unionization influences firm-specific stock price crash risk. Using a regression discontinuity design that leverages locally exogenous variation in unionization generated by close union elections, we find that unionization leads to a significant decline in crash risk. We further explore the underlying mechanisms through which unionization affects crash risk and find that unions limit risk-taking, constrain overinvestment, and improve information flow, which in turn reduces crash risk. Overall, our study resolves some of the current debate over the implications of unions and sheds new light on their net impact on shareholder welfare.

Suggested Citation

  • Kim, Jeong-Bon & Zhang, Eliza Xia & Zhong, Kai, 2021. "Does unionization affect the manager–shareholder conflict? Evidence from firm-specific stock price crash risk," Journal of Corporate Finance, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:corfin:v:69:y:2021:i:c:s0929119921001127
    DOI: 10.1016/j.jcorpfin.2021.101991
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0929119921001127
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jcorpfin.2021.101991?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Inder K. Khurana & Raynolde Pereira & Eliza (Xia) Zhang, 2018. "Is Real Earnings Smoothing Harmful? Evidence from Firm‐Specific Stock Price Crash Risk," Contemporary Accounting Research, John Wiley & Sons, vol. 35(1), pages 558-587, March.
    2. Alexander Bleck & Xuewen Liu, 2007. "Market Transparency and the Accounting Regime," Journal of Accounting Research, Wiley Blackwell, vol. 45(2), pages 229-256, May.
    3. John, Kose & Knyazeva, Anzhela & Knyazeva, Diana, 2015. "Employee rights and acquisitions," Journal of Financial Economics, Elsevier, vol. 118(1), pages 49-69.
    4. E. Han Kim, 2009. "Corporate Governance and Labor Relations," Journal of Applied Corporate Finance, Morgan Stanley, vol. 21(1), pages 57-66, January.
    5. Jin, Li & Myers, Stewart C., 2006. "R2 around the world: New theory and new tests," Journal of Financial Economics, Elsevier, vol. 79(2), pages 257-292, February.
    6. Murillo Campello & Janet Gao & Jiaping Qiu & Yue Zhang, 2018. "Bankruptcy and the Cost of Organized Labor: Evidence from Union Elections," Review of Financial Studies, Society for Financial Studies, vol. 31(3), pages 980-1013.
    7. Joshua D. Angrist & Jörn-Steffen Pischke, 2010. "The Credibility Revolution in Empirical Economics: How Better Research Design Is Taking the Con out of Econometrics," Journal of Economic Perspectives, American Economic Association, vol. 24(2), pages 3-30, Spring.
    8. Chen, Joseph & Hong, Harrison & Stein, Jeremy C., 2001. "Forecasting crashes: trading volume, past returns, and conditional skewness in stock prices," Journal of Financial Economics, Elsevier, vol. 61(3), pages 345-381, September.
    9. Efraim Benmelech & Eugene Kandel & Pietro Veronesi, 2010. "Stock-Based Compensation and CEO (Dis)Incentives," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(4), pages 1769-1820.
    10. Jeong†Bon Kim & Liandong Zhang, 2016. "Accounting Conservatism and Stock Price Crash Risk: Firm†level Evidence," Contemporary Accounting Research, John Wiley & Sons, vol. 33(1), pages 412-441, March.
    11. Li, Yiwei & Zeng, Yeqin, 2019. "The impact of top executive gender on asset prices: Evidence from stock price crash risk," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 528-550.
    12. Cable, J. R. & Machin, S. J., 1991. "The relationship between union wage and profitability effects," Economics Letters, Elsevier, vol. 37(3), pages 315-321, November.
    13. Glaeser, Stephen & Guay, Wayne R., 2017. "Identification and generalizability in accounting research: A discussion of Christensen, Floyd, Liu, and Maffett (2017)," Journal of Accounting and Economics, Elsevier, vol. 64(2), pages 305-312.
    14. Jones, Jj, 1991. "Earnings Management During Import Relief Investigations," Journal of Accounting Research, Wiley Blackwell, vol. 29(2), pages 193-228.
    15. repec:eee:labchp:v:2:y:1986:i:c:p:1139-1181 is not listed on IDEAS
    16. Ashwini K. Agrawal, 2012. "Corporate Governance Objectives of Labor Union Shareholders: Evidence from Proxy Voting," Review of Financial Studies, Society for Financial Studies, vol. 25(1), pages 187-226.
    17. A. Colin Cameron & Douglas L. Miller, 2015. "A Practitioner’s Guide to Cluster-Robust Inference," Journal of Human Resources, University of Wisconsin Press, vol. 50(2), pages 317-372.
    18. Bowen, Robert M. & DuCharme, Larry & Shores, D., 1995. "Stakeholders' implicit claims and accounting method choice," Journal of Accounting and Economics, Elsevier, vol. 20(3), pages 255-295, December.
    19. John DiNardo & David S. Lee, 2004. "Economic Impacts of New Unionization on Private Sector Employers: 1984–2001," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(4), pages 1383-1441.
    20. Kim, Jeong-Bon & Li, Yinghua & Zhang, Liandong, 2011. "Corporate tax avoidance and stock price crash risk: Firm-level analysis," Journal of Financial Economics, Elsevier, vol. 100(3), pages 639-662, June.
    21. Clark, Kim B, 1984. "Unionization and Firm Performance: The Impact on Profits, Growth, and Productivity," American Economic Review, American Economic Association, vol. 74(5), pages 893-919, December.
    22. Sophia J. W. Hamm & Boochun Jung & Woo‐Jong Lee, 2018. "Labor Unions and Income Smoothing," Contemporary Accounting Research, John Wiley & Sons, vol. 35(3), pages 1201-1228, September.
    23. Hutton, Amy P. & Marcus, Alan J. & Tehranian, Hassan, 2009. "Opaque financial reports, R2, and crash risk," Journal of Financial Economics, Elsevier, vol. 94(1), pages 67-86, October.
    24. David S. Lee & Alexandre Mas, 2012. "Long-Run Impacts of Unions on Firms: New Evidence from Financial Markets, 1961--1999," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 333-378.
    25. Andrew K. Prevost & Ramesh P. Rao & Melissa A. Williams, 2012. "Labor Unions as Shareholder Activists: Champions or Detractors?," The Financial Review, Eastern Finance Association, vol. 47(2), pages 327-349, May.
    26. Klasa, Sandy & Maxwell, William F. & Ortiz-Molina, Hernán, 2009. "The strategic use of corporate cash holdings in collective bargaining with labor unions," Journal of Financial Economics, Elsevier, vol. 92(3), pages 421-442, June.
    27. Gomez, Rafael & Tzioumis, Konstantinos, 2006. "What do unions do to executive compensation?," LSE Research Online Documents on Economics 19865, London School of Economics and Political Science, LSE Library.
    28. repec:eee:labchp:v:1:y:1986:i:c:p:641-692 is not listed on IDEAS
    29. Hahn, Jinyong & Todd, Petra & Van der Klaauw, Wilbert, 2001. "Identification and Estimation of Treatment Effects with a Regression-Discontinuity Design," Econometrica, Econometric Society, vol. 69(1), pages 201-209, January.
    30. Chemmanur, Thomas J. & Cheng, Yingmei & Zhang, Tianming, 2013. "Human capital, capital structure, and employee pay: An empirical analysis," Journal of Financial Economics, Elsevier, vol. 110(2), pages 478-502.
    31. Guido Imbens & Karthik Kalyanaraman, 2012. "Optimal Bandwidth Choice for the Regression Discontinuity Estimator," Review of Economic Studies, Oxford University Press, vol. 79(3), pages 933-959.
    32. David C. Rose, 1991. "Are Strikes Less Effective in Conglomerate Firms?," ILR Review, Cornell University, ILR School, vol. 45(1), pages 131-144, October.
    33. Chang, Xin & Chen, Yangyang & Zolotoy, Leon, 2017. "Stock Liquidity and Stock Price Crash Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(4), pages 1605-1637, August.
    34. Chyz, James A. & Ching Leung, Winnie Siu & Zhen Li, Oliver & Meng Rui, Oliver, 2013. "Labor unions and tax aggressiveness," Journal of Financial Economics, Elsevier, vol. 108(3), pages 675-698.
    35. Richard B. Freeman & James L. Medoff, 1979. "The Two Faces of Unionism," NBER Working Papers 0364, National Bureau of Economic Research, Inc.
    36. Menezes-Filho, Naercio Aquino, 1997. "Unions and Profitability over the 1980s: Some Evidence on Union-Firm Bargaining in the United Kingdom," Economic Journal, Royal Economic Society, vol. 107(442), pages 651-670, May.
    37. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 281-355, June.
    38. Fallick, Bruce C & Hassett, Kevin A, 1999. "Investment and Union Certification," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 570-582, July.
    39. Ruback, Richard S & Zimmerman, Martin B, 1984. "Unionization and Profitability: Evidence from the Capital Market," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1134-1157, December.
    40. Kim, Jeong-Bon & Li, Yinghua & Zhang, Liandong, 2011. "CFOs versus CEOs: Equity incentives and crashes," Journal of Financial Economics, Elsevier, vol. 101(3), pages 713-730, September.
    41. Jie He & Xuan Tian & Huan Yang & Luo Zuo, 2020. "Asymmetric Cost Behavior and Dividend Policy," Journal of Accounting Research, Wiley Blackwell, vol. 58(4), pages 989-1021, September.
    42. Tor‐Erik Bakke & Toni M. Whited, 2012. "Threshold Events and Identification: A Study of Cash Shortfalls," Journal of Finance, American Finance Association, vol. 67(3), pages 1083-1111, June.
    43. David A. Matsa, 2010. "Capital Structure as a Strategic Variable: Evidence from Collective Bargaining," Journal of Finance, American Finance Association, vol. 65(3), pages 1197-1232, June.
    44. Chen, Huafeng Jason & Kacperczyk, Marcin & Ortiz-Molina, Hernán, 2011. "Labor Unions, Operating Flexibility, and the Cost of Equity," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(1), pages 25-58, February.
    45. Jun Chen & Jamie Y. Tong & Wenming Wang & Feida Zhang, 2019. "The Economic Consequences of Labor Unionization: Evidence from Stock Price Crash Risk," Journal of Business Ethics, Springer, vol. 157(3), pages 775-796, July.
    46. D'Mello, Ranjan & Miranda, Mercedes, 2010. "Long-term debt and overinvestment agency problem," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 324-335, February.
    47. John DiNardo & David S. Lee, 2004. "Economic Impacts of Unionization on Private Sector Employers: 1984-2001," NBER Working Papers 10598, National Bureau of Economic Research, Inc.
    48. Francesco Bova, 2013. "Labor Unions and Management’s Incentive to Signal a Negative Outlook," Contemporary Accounting Research, John Wiley & Sons, vol. 30(1), pages 14-41, March.
    49. Matias D. Cattaneo & Nicolas Idrobo & Rocio Titiunik, 2019. "A Practical Introduction to Regression Discontinuity Designs: Foundations," Papers 1911.09511, arXiv.org.
    50. Lee, David S., 2008. "Randomized experiments from non-random selection in U.S. House elections," Journal of Econometrics, Elsevier, vol. 142(2), pages 675-697, February.
    51. Deng, Xiaohu & Gao, Lei & Kim, Jeong-Bon, 2020. "Short-sale constraints and stock price crash risk: Causal evidence from a natural experiment," Journal of Corporate Finance, Elsevier, vol. 60(C).
    52. Richard Chung & Bryan Byung-Hee Lee & Woo-Jong Lee & Byungcherl Charlie Sohn, 2016. "Do Managers Withhold Good News from Labor Unions?," Management Science, INFORMS, vol. 62(1), pages 46-68, January.
    53. Hyun A. Hong & Jeong‐Bon Kim & Michael Welker, 2017. "Divergence of Cash Flow and Voting Rights, Opacity, and Stock Price Crash Risk: International Evidence," Journal of Accounting Research, Wiley Blackwell, vol. 55(5), pages 1167-1212, December.
    54. Kaplan, Steven N & Weisbach, Michael S, 1992. "The Success of Acquisitions: Evidence from Divestitures," Journal of Finance, American Finance Association, vol. 47(1), pages 107-138, March.
    55. Jeffrey L. Callen & Xiaohua Fang, 2017. "Crash Risk and the Auditor–Client Relationship," Contemporary Accounting Research, John Wiley & Sons, vol. 34(3), pages 1715-1750, September.
    56. McCrary, Justin, 2008. "Manipulation of the running variable in the regression discontinuity design: A density test," Journal of Econometrics, Elsevier, vol. 142(2), pages 698-714, February.
    57. Campello, Murillo & Gao, Janet & Qiu, Jiaping & Zhang, Yue, 2018. "Bankruptcy and the cost of organized labor: Evidence from union elections," LIDAM Reprints LFIN 2018015, Université catholique de Louvain, Louvain Finance (LFIN).
    58. Stephen G. Bronars & Donald R. Deere, 1991. "The Threat of Unionization, the Use of Debt, and the Preservation of Shareholder Wealth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(1), pages 231-254.
    59. Dessaint, Olivier & Golubov, Andrey & Volpin, Paolo, 2017. "Employment protection and takeovers," Journal of Financial Economics, Elsevier, vol. 125(2), pages 369-388.
    60. Daniel Bradley & Incheol Kim & Xuan Tian, 2017. "Do Unions Affect Innovation?," Management Science, INFORMS, vol. 63(7), pages 2251-2271, July.
    61. Gilles Hilary, 2006. "Organized Labor and Information Asymmetry in the Financial Markets," Post-Print hal-00482326, HAL.
    62. Stephen B. Jarrell & T. D. Stanley, 1990. "A Meta-Analysis of the Union-Nonunion Wage Gap," ILR Review, Cornell University, ILR School, vol. 44(1), pages 54-67, October.
    63. Huang, Qianqian & Jiang, Feng & Lie, Erik & Que, Tingting, 2017. "The Effect of Labor Unions on CEOÂ Compensation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(2), pages 553-582, April.
    64. Masulis, Ronald W. & Wang, Cong & Xie, Fei, 2020. "Employee-Manager Alliances and Shareholder Returns from Acquisitions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(2), pages 473-516, March.
    65. Al Mamun, Md & Balachandran, Balasingham & Duong, Huu Nhan, 2020. "Powerful CEOs and stock price crash risk," Journal of Corporate Finance, Elsevier, vol. 62(C).
    66. Hamdi Ben-Nasr & Abdullah Al-Dahmash & Hamdi Ben-Nasr, 2015. "Do Labor Unions Affect Stock Price Crash Risk?," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 6(2), pages 11-22, April.
    67. An, Heng & Zhang, Ting, 2013. "Stock price synchronicity, crash risk, and institutional investors," Journal of Corporate Finance, Elsevier, vol. 21(C), pages 1-15.
    68. Bradley S. Blaylock, 2016. "Is Tax Avoidance Associated with Economically Significant Rent Extraction among U.S. Firms?," Contemporary Accounting Research, John Wiley & Sons, vol. 33(3), pages 1013-1043, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jin, Yige & Dong, Nanyan & Tian, Gaoliang & Zhang, Junrui, 2023. "Wisdom of the masses: Employee education and corporate risk taking," Economic Modelling, Elsevier, vol. 118(C).
    2. Wang, Xiaoxiao & Liu, Haiming, 2022. "The impact of rollover restriction on stock price crash risk," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).
    3. Kim, Jeong-Bon & Liao, Shushu & Liu, Yangke, 2021. "Married CEOs and Stock Price Crash Risk," QBS Working Paper Series 2021/09, Queen's University Belfast, Queen's Business School.
    4. Yang, Zhiqing & Liu, Xiaowen, 2022. "The impacts of compulsory food liability insurance policy on stock price crash risk: Evidence from Chinese food industry," Finance Research Letters, Elsevier, vol. 50(C).
    5. Hofmann, Bastian & Schoonjans, Eline, 2023. "Timing is key: When does the market react to unionization efforts?," Finance Research Letters, Elsevier, vol. 54(C).
    6. Huang, Zhi-xiong & Li, Xiaozhong & Zhao, Yuheng, 2022. "Stock pledge restrictions and investment efficiency," Finance Research Letters, Elsevier, vol. 48(C).
    7. Yi Si & Chongwu Xia, 2023. "The Effect of Human Capital on Stock Price Crash Risk," Journal of Business Ethics, Springer, vol. 187(3), pages 589-609, October.
    8. Zhang, Xiaotao & Wang, Ziqiao & Hao, Jing & He, Feng, 2022. "Price limit and stock market quality: Evidence from a quasi-natural experiment in the Chinese stock market," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ghaly, Mohamed & Kostakis, Alexandros & Stathopoulos, Konstantinos, 2021. "The (non-) effect of labor unionization on firm risk: Evidence from the options market," Journal of Corporate Finance, Elsevier, vol. 66(C).
    2. Daniel Bradley & Incheol Kim & Xuan Tian, 2017. "Do Unions Affect Innovation?," Management Science, INFORMS, vol. 63(7), pages 2251-2271, July.
    3. Yi Si & Chongwu Xia, 2023. "The Effect of Human Capital on Stock Price Crash Risk," Journal of Business Ethics, Springer, vol. 187(3), pages 589-609, October.
    4. Jun Chen & Jamie Y. Tong & Wenming Wang & Feida Zhang, 2019. "The Economic Consequences of Labor Unionization: Evidence from Stock Price Crash Risk," Journal of Business Ethics, Springer, vol. 157(3), pages 775-796, July.
    5. Magnus Schauf & Eline Schoonjans, 2022. "Better Safe than Sorry: Toxic Waste Management after Unionization," Working Papers 220, Bavarian Graduate Program in Economics (BGPE).
    6. Krishnamurti, Chandrasekhar & Chowdhury, Hasibul & Han, Hien Duc, 2021. "CEO centrality and stock price crash risk," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).
    7. Ertugrul, Mine & Marciukaityte, Dalia, 2021. "Labor unions and corporate social responsibility," Journal of Banking & Finance, Elsevier, vol. 125(C).
    8. Chen, Yangyang & Fan, Qingliang & Yang, Xin & Zolotoy, Leon, 2021. "CEO early-life disaster experience and stock price crash risk," Journal of Corporate Finance, Elsevier, vol. 68(C).
    9. Kim, Jeong-Bon & Liao, Shushu & Liu, Yangke, 2021. "Married CEOs and Stock Price Crash Risk," QBS Working Paper Series 2021/09, Queen's University Belfast, Queen's Business School.
    10. Andreou, Christoforos K. & Andreou, Panayiotis C. & Lambertides, Neophytos, 2021. "Financial distress risk and stock price crashes," Journal of Corporate Finance, Elsevier, vol. 67(C).
    11. Chino, Atsushi, 2016. "Do labor unions affect firm payout policy?: Operating leverage and rent extraction effects," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 156-178.
    12. Balachandran, Balasingham & Duong, Huu Nhan & Luong, Hoang & Nguyen, Lily, 2020. "Does takeover activity affect stock price crash risk? Evidence from international M&A laws," Journal of Corporate Finance, Elsevier, vol. 64(C).
    13. Woon Sau Leung & Jing Li & Jiong Sun, 2020. "Labor Unionization and Supply‐Chain Partners’ Performance," Production and Operations Management, Production and Operations Management Society, vol. 29(5), pages 1325-1353, May.
    14. Dang, Viet Anh & Lee, Edward & Liu, Yangke & Zeng, Cheng, 2022. "Bank deregulation and stock price crash risk," Journal of Corporate Finance, Elsevier, vol. 72(C).
    15. Dan Hu & Eunju Lee & Bingxin Li, 2023. "Trade secrets protection and stock price crash risk," The Financial Review, Eastern Finance Association, vol. 58(2), pages 395-421, May.
    16. Özgür Arslan‐Ayaydin & James Thewissen & Wouter Torsin, 2021. "Disclosure tone management and labor unions," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(1-2), pages 102-147, January.
    17. Hu, Gang & Liu, Yiye & Wang, Jacqueline Wenjie & Zhou, Gaoguang & Zhu, Xindong, 2022. "Insider ownership and stock price crash risk around the globe," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).
    18. Cao, Feng & Zhang, Xueyan & Yuan, Rongli, 2022. "Do geographically nearby major customers mitigate suppliers’ stock price crash risk?," The British Accounting Review, Elsevier, vol. 54(6).
    19. Jin, Hong-min & Su, Zhong-qin & Wang, Lu & Xiao, Zuoping, 2022. "Do academic independent directors matter? Evidence from stock price crash risk," Journal of Business Research, Elsevier, vol. 144(C), pages 1129-1148.
    20. Di Giuli, Alberta & Matta, Rafael & Romec, Arthur, 2023. "Capital structure and reversible bargaining tools: Evidence from union-sponsored shareholder proposals," Journal of Banking & Finance, Elsevier, vol. 149(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:corfin:v:69:y:2021:i:c:s0929119921001127. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jcorpfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.