Capital Structure as a Strategic Variable: Evidence from Collective Bargaining
David A. Matsa
Northwestern University - Kellogg School of Management
July 28, 2009
Journal of Finance, Forthcoming
I analyze the strategic use of debt financing to improve a firm's bargaining position with an important supplier -- organized labor. Because maintaining high levels of corporate liquidity can encourage workers to raise their wage demands, a firm with external finance constraints has an incentive to use the cash flow demands of debt service to improve its bargaining position with workers. Using both firm-level collective bargaining coverage and state changes in labor laws to identify changes in union bargaining power, I show that strategic incentives from union bargaining appear to have a substantial impact on corporate financing decisions.
Number of Pages in PDF File: 62
Keywords: strategic investment, strategic capital structure, collective bargaining, union rent sharing, right-to-work laws, unemployment insurance work stoppage provision, buffer inventories
JEL Classification: D21, G32, J51, L14Accepted Paper Series
Date posted: October 2, 2006 ; Last revised: July 28, 2009
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