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Asset specificity, unionization and the firm's use of debt

Author

Listed:
  • Joseph K. Cavanaugh

    (Wright State University, Celina, OH, USA)

  • John Garen

    (University of Kentucky, Lexington, KY, USA)

Abstract

This paper considers the combined influence of asset specificity and unionization on the firm's use of debt. While previous literature tends to examine these effects separately, we find that the interaction of the two is critical. Thus, while asset specificity may reduce debt as in Williamson (1988), the presence of a strong union offsets this. Unionization increases the firm's debt as in Bronars and Deere (1991), but asset generality diminishes this effect. We model and test the interactive nature of these two effects. Using firm-specific unionization data and various proxies for asset specificity, we find support for our model. © 1997 John Wiley & Sons, Ltd.

Suggested Citation

  • Joseph K. Cavanaugh & John Garen, 1997. "Asset specificity, unionization and the firm's use of debt," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 18(3), pages 255-269.
    • Handle: RePEc:wly:mgtdec:v:18:y:1997:i:3:p:255-269
    DOI: 10.1002/(SICI)1099-1468(199705)18:3<255::AID-MDE820>3.0.CO;2-R
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    Cited by:

    1. Woods, Keegan & Tan, Kelvin Jui Keng & Faff, Robert, 2019. "Labor unions and corporate financial leverage: The bargaining device versus crowding-out hypotheses," Journal of Financial Intermediation, Elsevier, vol. 37(C), pages 28-44.
    2. Istaitieh, Abdulaziz & Rodriguez-Fernandez, Jose M., 2006. "Factor-product markets and firm's capital structure: A literature review," Review of Financial Economics, Elsevier, vol. 15(1), pages 49-75.
    3. Chen, I-Ju & Chen, Yan-Shing & Chen, Sheng-Syan, 2018. "The strategic choice of payment method in corporate acquisitions: The role of collective bargaining against unionized workers," Journal of Banking & Finance, Elsevier, vol. 88(C), pages 408-422.
    4. Efraim Benmelech & Nittai K. Bergman & Ricardo J. Enriquez, 2012. "Negotiating with Labor under Financial Distress," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 1(1), pages 28-67.
    5. David A. Matsa, 2018. "Capital Structure and a Firm’s Workforce," NBER Working Papers 25125, National Bureau of Economic Research, Inc.
    6. Martínez Ros, Ester & Tribo Gine, José Antonio, 2002. "R&D investment and financial contracting in spanish manufacturig firms," DEE - Working Papers. Business Economics. WB wb020904, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    7. Yongqiang Chu & Liying Wang, 2017. "Capital Structure Along the Supply Chain: How Does Customer Leverage Affect Supplier Leverage Decisions?," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 7(04), pages 1-29, December.

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