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The Economic Consequences of Labor Unionization: Evidence from Stock Price Crash Risk

Author

Listed:
  • Jun Chen

    (Zhejiang University)

  • Jamie Y. Tong

    (University of Western Australia
    University of Queensland)

  • Wenming Wang

    (Hong Kong Baptist University)

  • Feida Zhang

    (Murdoch University
    University of Queensland)

Abstract

This study investigates the impact of labor unionization on stock price crash risk. We find that labor unionization is negatively associated with stock price crash risk. Such negative relation is more pronounced when firms can intimate more credible evidence on unfavorable prospects and when firms face more powerful labor unions. Our findings are consistent with the notion that firms take strategic actions to reduce the bargaining advantages enjoyed by labor unions and that labor unions force firms to take less risky investments and discontinue underperformed projects more timely, which leads to lower stock price crash risk.

Suggested Citation

  • 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.
    • Handle: RePEc:kap:jbuset:v:157:y:2019:i:3:d:10.1007_s10551-017-3686-0
    DOI: 10.1007/s10551-017-3686-0
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    More about this item

    Keywords

    Labor unions; Bargaining position; Crash risk; Risk aversion;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

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