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Union Contracts and the Firm's Financial Structure

  • Elie Appelbaum

    ()

    (Department of Economics, York University)

This paper examines the effects of union contracts on the firm’s capital structure. We consider one-stage and two-stage models, as well as wage and wage/employment contracts. We show that, for all Pareto efficient bargaining solutions, a higher debt reduces the expected tax bill, but increases the expected cost of labour contracts. This trade-off determines the optimal capital structure. We also show that a stronger union tends to increase the amount of equity used.

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File URL: http://dept.econ.yorku.ca/research/workingPapers/working_papers/2002/elie-2002-union.pdf
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Paper provided by York University, Department of Economics in its series Working Papers with number 2002_12.

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Length: 18 pages
Date of creation: Jul 2002
Date of revision:
Handle: RePEc:yca:wpaper:2002_12
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Web page: http://dept.econ.yorku.ca/

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  1. Brander, James A & Spencer, Barbara J, 1989. "Moral Hazard and Limited Liability: Implications for the Theory of the Firm," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(4), pages 833-49, November.
  2. Appelbaum, Elie, 1993. "Government policy and the firm's capital structure," European Economic Review, Elsevier, vol. 37(6), pages 1185-1196, August.
  3. Appelbaum, Elie & Katz, Eliakim, 1986. "Measures of Risk Aversion and Comparative Statics of Industry Equilibrium," American Economic Review, American Economic Association, vol. 76(3), pages 524-29, June.
  4. Appelbaum, E., 1989. "Bankruptcy, Warranties And The Firm'S Capital Structure," Papers 89-09, York (Canada) - Department of Economics.
  5. E. Appelbaum & E. Katz, 1987. "Asymmetric Taxation and the Theory of the Competitive Firm under Uncertainty," Canadian Journal of Economics, Canadian Economics Association, vol. 20(2), pages 357-69, May.
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