Hostname: page-component-78c5997874-lj6df Total loading time: 0 Render date: 2024-11-15T08:30:29.619Z Has data issue: false hasContentIssue false
  • English
  • Français

Does the Political Power of Nonfinancial Stakeholders Affect Firm Values? Evidence from Labor Unions

Published online by Cambridge University Press:  29 April 2018

Jared Stanfield  and
Robert Tumarkin
Get access Rights & Permissions [Opens in a new window]

Abstract

Whereas corporate political connections are known to enhance equity values, we demonstrate that union political activity can have the opposite effect. We examine the consequences of a recent Australian state law that restricts union political activity but does not change collective bargaining rights. In the wake of this law, the equity values of affected unionized firms significantly increase, and consistent with this market reaction, these firms are able to bargain for more favorable labor contracts than their unionized peers in other states. The evidence strongly suggests that unions use political activism to extract rents from shareholders and benefit their members.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 53 , Issue 3 , June 2018 , pp. 1101 - 1133
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

1

We thank Paul Malatesta (the editor) and an anonymous referee for many useful suggestions. We are grateful for helpful comments from Renée Adams, Patrick Bolton, Diane Del Guercio, Ran Duchin, Mara Faccio, Joseph Fan, Neal Galpin, Jarrad Harford, Barry Hirsch, Richard Holden, Kate Holland, Sandy Klasa, Ron Masulis, Vikas Mehrotra, Lyndon Moore, Ville Rantala, Jake Rosenfeld, Rik Sen, Jason Zein, and seminar participants at the 2016 American Economics Association Annual Meeting, the 2016 Financial Management Association Annual Meeting, the 2015 Conference on Empirical Legal Studies, the 2014 National Bureau of Economic Research Law and Economics Program Meeting, the 2013 Banff Frontiers in Finance Conference, the 2013 Australian National University Research School of Finance, the Actuarial Studies & Statistics Summer Research Camp, the 2012 Financial Research Network Annual Conference, the University of Melbourne, the University of Queensland, and La Trobe University. We thank Nithilla Jeyalingam and Ian Liu for excellent research assistance.

References

Agrawal, A. K.“Corporate Governance Objectives of Labor Union Shareholders: Evidence from Proxy Voting.” Review of Financial Studies, 25 (2012), 187–226.Google Scholar
Ansolabehere, S.; de Figueiredo, J. M.; and Snyder, J. M.. “Why Is There So Little Money in U.S. Politics?” Journal of Economic Perspectives, 17 (2003), 105–130.Google Scholar
Ashenfelter, O., and Johnson, G. E.. “Bargaining Theory, Trade Unions, and Industrial Strike Activity.” American Economic Review, 59 (1969), 35–49.Google Scholar
Bennett, J. T., and Taylor, J. E.. “Labor Unions: Victims of their Political Success?” Journal of Labor Research, 22 (2001), 261–273.CrossRefGoogle Scholar
Bernstein, I. The New Deal Collective Bargaining Policy. Berkeley, CA: University of California Press (1950).Google Scholar
Bertrand, M.; Duflo, E.; and Mullainathan, S.. “How Much Should We Trust Differences-in-Differences Estimates?” Quarterly Journal of Economics, 119 (2004), 249–275.Google Scholar
Blanchflower, D. G., and Bryson, A.. “What Effect Do Unions Have on Wages Now and Would Freeman and Medoff Be Surprised?” Journal of Labor Research, 25 (2004), 383–414.CrossRefGoogle Scholar
Blaylock, B. S.; Edwards, A. S.; and Stanfield, J. R.. “The Role of Government in the Labor–Creditor Relationship: Evidence from the Chrysler Bankruptcy.” Journal of Financial and Quantitative Analysis, 50 (2015), 325–348.Google Scholar
Bronars, S. G., and Deere, D. R.. “The Threat of Unionization, the Use of Debt, and the Preservation of Shareholder Wealth.” Quarterly Journal of Economics, 106 (1991), 231–254.CrossRefGoogle Scholar
Brown, S. J., and Warner, J. B.. “Measuring Security Price Performance.” Journal of Financial Economics, 8 (1980), 205–258.CrossRefGoogle Scholar
Bulkley, G., and Myles, G. D.. “Trade Unions, Efficiency Wages, and Shirking.” Oxford Economic Papers, 48 (1996), 75–88.Google Scholar
Calmfors, L.; Driffill, J.; Honkapohja, S.; and Giavazzi, F.. “Bargaining Structure, Corporatism and Macroeconomic Performance.” Economic Policy, 3 (1988), 13–61.Google Scholar
Cappelli, P., and Chauvin, K.. “An Interplant Test of the Efficiency Wage Hypothesis.” Quarterly Journal of Economics, 106 (1991), 769–787.Google Scholar
Chen, H. J.; Kacperczyk, M.; and Ortiz-Molina, H.. “Labor Unions Operating Flexibility, and the Cost of Equity.” Journal of Financial and Quantitative Analysis, 46 (2011), 25–58.Google Scholar
Chen, H. J.; Kacperczyk, M.; and Ortiz-Molina, H.. “Do Nonfinancial Stakeholders Affect the Pricing of Risky Debt? Evidence from Unionized Workers.” Review of Finance, 16 (2012), 347–383.Google Scholar
Cohen, L.; Coval, J. D.; and Malloy, C.. “Are Unions Pro-Labor?” Working Paper, Harvard Business School (2012).Google Scholar
Connolly, R. A.; Hirsch, B. T.; and Hirschey, M.. “Union Rent Seeking, Intangible Capital, and Market Value of the Firm.” Review of Economics and Statistics, 68 (1986), 567–577.Google Scholar
Cooper, M. J.; Gulen, H.; and Ovtchinnikov, A. V.. “Corporate Political Contributions and Stock Returns.” Journal of Finance, 65 (2010), 687–724.Google Scholar
Cucinotta, D.“The Cost of Political Donation Reform: A Burden on the Implied Freedom of Political Communication-Unions NSW and Others v State of New South Wales.” Bond Law Review, 25 (2013), 70–97.Google Scholar
Del Guercio, D., and Woidtke, T.. “The Mitigating Effect of the Market for Directors on ‘Special Interest’ Shareholder Activism.” Working Paper, University of Oregon (2014).Google Scholar
DiNardo, J., and Lee, D. S.. “Economic Impacts of New Unionization on Private Sector Employers: 1984–2001.” Quarterly Journal of Economics, 119 (2004), 1383–1441.Google Scholar
Duchin, R., and Sosyura, D.. “The Politics of Government Investment.” Journal of Financial Economics, 106 (2012), 24–48.Google Scholar
Faccio, M.“Politically Connected Firms.” American Economic Review, 96 (2006), 369–386.CrossRefGoogle Scholar
Faccio, M.; Masulis, R. W.; and McConnell, J.. “Political Connections and Corporate Bailouts.” Journal of Finance, 61 (2006), 2597–2635.CrossRefGoogle Scholar
Faleye, O.; Mehrotra, V.; and Morck, R.. “When Labor Has a Voice in Corporate Governance.” Journal of Financial and Quantitative Analysis, 41 (2006), 489–510.Google Scholar
Francia, P. L.“Do Unions Still Matter in U.S. Elections? Assessing Labor’s Political Power and Significance.” The Forum, 10 (2012), article 3.Google Scholar
Frandsen, B. R.“Why Unions Still Matter: The Effects of Unionization on the Distribution of Employee Earnings.” Working Paper, Massachusetts Institute of Technology (2012).Google Scholar
Goldman, E.; Rocholl, J.; and So, J.. “Do Politically Connected Boards Affect Firm Value?” Review of Financial Studies, 22 (2009), 2331–2360.Google Scholar
Grout, P. A.“Investment Wages in the Absence of Binding Contracts: A Nash Bargaining Approach.” Econometrica, 52 (1984), 449–460.Google Scholar
Hirsch, B. T., and Berger, M. C.. “Union Membership Determination and Industry Characteristics.” Southern Economic Journal, 50 (1984), 665–679.Google Scholar
Igan, D., and Mishra, P.. “Wall Street, Capitol Hill, and K Street: Political Influence and Financial Regulation.” Journal of Law and Economics, 57 (2014), 1063–1084.Google Scholar
Jayachandran, S.“The Jeffords Effect.” Journal of Law and Economics, 49 (2006), 397–425.Google Scholar
Jensen, M. C., and Meckling, W. H.. “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.” Journal of Financial Economics, 3 (1976), 305–360.Google Scholar
Katz, H. C.; Batt, R.; and Keefe, J. H.. “The Revitalization of the CWA: Integrating Collective Bargaining, Political Action, and Organizing.” Industrial and Labor Relations Review, 56 (2003), 573–589.Google Scholar
Kerrissey, J., and Schofer, E.. “Union Membership and Political Participation in the United States.” Social Forces, 91 (2013), 895–928.Google Scholar
Keyserling, L. H.“The Wagner Act: Its Origin and Current Significance.” George Washington Law Review, 29 (1960), 199–233.Google Scholar
Kim, C. F.; Pantzalis, C.; and Park, J. C.. “Political Geography and Stock Returns: The Value and Risk Implications of Proximity to Political Power.” Journal of Financial Economics, 106 (2012), 196–228.Google Scholar
Kim, E. H.; Maug, E. G.; and Schneider, C.. “Labor Representation in Governance as an Insurance Mechanism.” Working Paper, European Corporate Governance Institute (2016).Google Scholar
Klasa, S.; Maxwell, W. F.; and Ortiz-Molina, H.. “The Strategic Use of Corporate Cash Holdings in Collective Bargaining with Labor Unions.” Journal of Financial Economics, 92 (2009), 421–442.CrossRefGoogle Scholar
Laffont, J.-J., and Tirole, J.. “The Politics of Government Decision-Making: A Theory of Regulatory Capture.” Quarterly Journal of Economics, 106 (1991), 1089–1127.Google Scholar
Lee, D., and Mas, A.. “Long-Run Impacts of Unions on Firms: New Evidence from Financial Markets, 1961–1999.” Quarterly Journal of Economics, 127 (2012), 333–378.Google Scholar
Lewis, H. G. Unionism Relative Wages in the United States: An Empirical Inquiry. Chicago, IL: University of Chicago Press (1963).Google Scholar
Lewis, H. G.“Union Relative Wage Effects: A Survey of Macro Estimates.” Journal of Labor Economics, 1 (1983), 1–27.Google Scholar
Lewis, H. G.“Union Relative Wage Effects.” Handbook of Labor Economics, 2 (1986), 1139–1181.Google Scholar
Matsa, D. A.“Capital Structure as a Strategic Variable: Evidence from Collective Bargaining.” Journal of Finance, 65 (2010), 1197–1232.CrossRefGoogle Scholar
Milyo, J.; Primo, D.; and Groseclose, T.. “Corporate PAC Campaign Contributions in Perspective.” Business and Politics, 2 (2000), 75–88.CrossRefGoogle Scholar
Murphy, K. M., and Topel, R. H.. “Estimation and Inference in Two-Step Econometric Models.” Journal of Business & Economic Statistics, 3 (1985), 370–379.Google Scholar
Myers, B. W., and Saretto, A.. “Does Capital Structure Affect the Behavior of Nonfinancial Stakeholders? An Empirical Investigation into Leverage and Union Strikes.” Management Science, 62 (2016), 3235–3253.Google Scholar
Newey, W. K., and West, K. D.. “A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix.” Econometrica, 55 (1987), 703–708.Google Scholar
Organisation for Economic Co-Operation and Development. “Trade Union Density.” Available athttp://stats.oecd.org(Dec. 2013).Google Scholar
Ouimet, P., and Simintzi, E.. “Wages and Firm Performance: Evidence from the 2008 Financial Crisis.” Working Paper, University of North Carolina (2016).Google Scholar
Peltzman, S.“Toward a More General Theory of Regulation.” Journal of Law and Economics, 19 (1976), 211–240.CrossRefGoogle Scholar
Perotti, E. C., and Spier, K. E.. “Capital Structure as a Bargaining Tool: The Role of Leverage in Contract Renegotiation.” American Economic Review, 83 (1993), 1131–1141.Google Scholar
Roe, M. J., and Skeel, D.. “Assessing the Chrysler Bankruptcy.” Michigan Law Review, 108 (2010), 727–771.Google Scholar
Rosenbaum, P. R., and Rubin, D. B.. “The Central Role of the Propensity Score in Observational Studies for Causal Effects.” Biometrika, 70 (1983), 41–55.Google Scholar
Ruback, R. S., and Zimmerman, M. B.. “Unionization and Profitability: Evidence from the Capital Market.” Journal of Political Economy, 92 (1984), 1134–1157.CrossRefGoogle Scholar
Rudy, P. R.“‘Justice for Janitors,’ not ‘Compensation for Custodians’.” In Rebuilding Labor: Organizing and Organizers in the New Union Movement, Milkman, R. and Voss, K., eds. Ithaca, NY: Cornell University Press (2004), 133–149.Google Scholar
Salinger, M. A.“Tobin’s q, Unionization, and the Concentration-Profits Relationship.” RAND Journal of Economics, 15 (1984), 159–170.Google Scholar
Sefcik, S. E., and Thompson, R.. “An Approach to Statistical Inference in Cross-Sectional Models with Security Abnormal Returns as Dependent Variable.” Journal of Accounting Research, 24 (1986), 316–334.Google Scholar
Stigler, G. J.“The Theory of Economic Regulation.” Bell Journal of Economics and Management Science, 2 (1971), 3–21.Google Scholar
Stiglitz, J. E.“The Efficiency Wage Hypothesis, Surplus Labour, and the Distribution of Income in L.D.C.s.” Oxford Economic Papers, 28 (1976), 185–207.Google Scholar
Williams, G.“High Court Challenges and the Limits of Political Finance Law.” Working Paper, University of New South Wales (2013).Google Scholar
Supplementary material: File

Stanfield and Tumarkin supplementary material

Stanfield and Tumarkin supplementary material 1

Download Stanfield and Tumarkin supplementary material(File)
File 136.6 KB