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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, L14

Accepted Paper Series

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Date posted: October 2, 2006 ; Last revised: March 15, 2014

Suggested Citation

Matsa, David A., Capital Structure as a Strategic Variable: Evidence from Collective Bargaining (July 28, 2009). Journal of Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=933698

Contact Information

David A. Matsa (Contact Author)
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8337 (Phone)
847-491-5719 (Fax)
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