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ESOP fables: the impact of employee stock ownership plans on labor disputes

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  • Peter Cramton
  • Hamid Mehran
  • Joseph Tracy

Abstract

By the early 1990s, employee stock ownership plans (ESOPs) had become as prevalent in unionized firms as in nonunionized firms. However, little research has been devoted to examining the implications of ESOPs for collective bargaining or, more generally, for cross ownership. In this paper, we extend the signaling model of Cramton and Tracy (1992) to allow partial ownership by the union. We demonstrate that ESOPs create incentives for unions to become weaker bargainers. As a result, the model predicts that ESOPs will lead to a reduction in strike incidence and in the fraction of labor disputes that involve a strike. We examine these predictions using U.S. bargaining data from 1970 to 1995. The data suggest that ESOPs do increase the efficiency of labor negotiations by shifting the composition of disputes away from costly strikes. Consistent with improved bargaining efficiency, we find that the announcement of a union ESOP leads to a 50 percent larger stock market reaction when compared with the announcement of a nonunion ESOP.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 347.

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Date of creation: 2008
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Handle: RePEc:fip:fednsr:347

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Related research

Keywords: Employee fringe benefits ; Stock options ; Collective bargaining;

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References

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  1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  2. Chaplinsky, Susan & Niehaus, Greg, 1994. " The Role of ESOPs in Takeover Contests," Journal of Finance, American Finance Association, vol. 49(4), pages 1451-70, September.
  3. Myron S. Scholes & Mark A. Wolfson, 1989. "Employee Stock Ownership Plans and Corporate Restructuring: Myths and Realities," NBER Working Papers 3094, National Bureau of Economic Research, Inc.
  4. Ben-Ner, Avner & Jun, Byoung, 1996. "Employee Buyout in a Bargaining Game with Asymmetric Information," American Economic Review, American Economic Association, vol. 86(3), pages 502-23, June.
  5. Douglas Kruse & Joseph Blasi, 1995. "Employee Ownership, Employee Attitudes, and Firm Performance," NBER Working Papers 5277, National Bureau of Economic Research, Inc.
  6. Admati, Anat R & Perry, Motty, 1987. "Strategic Delay in Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 54(3), pages 345-64, July.
  7. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
  8. Peter Cramton & Joseph S. Tracy, 1992. "Strikes and Holdouts in Wage Bargaining: Theory and Data," Papers of Peter Cramton 92aer, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  9. Robert Flanagan, 1984. "Wage Concessions and Long-Term Union Wage Flexibility," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(1), pages 183-222.
  10. Gordon, Lilli A. & Pound, John, 1990. "ESOPs and corporate control," Journal of Financial Economics, Elsevier, vol. 27(2), pages 525-555, October.
  11. Beatty, Anne, 1995. "The cash flow and informational effects of employee stock ownership plans," Journal of Financial Economics, Elsevier, vol. 38(2), pages 211-240, June.
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Cited by:
  1. Tzioumis, Konstantinos, 2008. "Why do firms adopt CEO stock options? Evidence from the United States," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 100-111, October.

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