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The strategic use of corporate cash holdings in collective bargaining with labor unions

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  • Klasa, Sandy
  • Maxwell, William F.
  • Ortiz-Molina, Hernán
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    Abstract

    We provide evidence that firms in more unionized industries strategically hold less cash to gain bargaining advantages over labor unions and shelter corporate income from their demands. Specifically, we show that corporate cash holdings are negatively related with unionization. We also find that this relation is stronger for firms that are likely to place a higher value on gaining a bargaining advantage over unions and weaker for those firms in which lower cash holdings provide less credible evidence that a firm is unable to concede to union demands. Additionally, we show that for unionized firms increases in cash holdings raise the probability of a strike. Finally, we show that unionization decreases the market value of a dollar of cash holdings. Overall, our findings indicate that firms trade-off the benefits of corporate cash holdings with the costs resulting from a weaker bargaining position with labor.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 92 (2009)
    Issue (Month): 3 (June)
    Pages: 421-442

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    Handle: RePEc:eee:jfinec:v:92:y:2009:i:3:p:421-442

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Cash holdings Corporate liquidity policy Labor unions;

    References

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    Citations

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    Cited by:
    1. Almeida, Heitor & Campello, Murillo & Cunha, Igor & Weisbach, Michael S., 2013. "Corporate Liquidity Management: A Conceptual Framework and Survey," Working Paper Series 2013-15, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    2. Efraim Benmelech & Nittai K. Bergman & Ricardo Enriquez, 2011. "Negotiating with Labor Under Financial Distress," NBER Working Papers 17192, National Bureau of Economic Research, Inc.
    3. 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.
    4. Alimov, Azizjon, 2014. "Product market competition and the value of corporate cash: Evidence from trade liberalization," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 122-139.
    5. Bae, Kee-Hong & Kang, Jun-Koo & Wang, Jin, 2011. "Employee treatment and firm leverage: A test of the stakeholder theory of capital structure," Journal of Financial Economics, Elsevier, vol. 100(1), pages 130-153, April.
    6. Chen, Tsung-Kang & Chen, Yan-Shing & Liao, Hsien-Hsing, 2011. "Labor unions, bargaining power and corporate bond yield spreads: Structural credit model perspectives," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 2084-2098, August.
    7. Chen, Yan-Shing & Chen, I-Ju, 2013. "The impact of labor unions on investment-cash flow sensitivity," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2408-2418.
    8. Waxin, Timothée, 2010. "The Impact of Founding-Family Ownership on Labor Relations : Evidence from French Workplace-Level Data," Economics Papers from University Paris Dauphine 123456789/5892, Paris Dauphine University.
    9. Hui, Kai Wai & Klasa, Sandy & Yeung, P. Eric, 2012. "Corporate suppliers and customers and accounting conservatism," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 115-135.

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