Union Strikes and the Impact of Non-Financial Stake Holders on Capital Structure

Abstract

Leverage affects the relative bargaining power between firms and labor unions and, consistent with this, we find that unions are more likely to engage in a strike during contract negotiations if firm leverage has decreased in the preceding years. In response to a strike, firms increase leverage by actively repurchasing equity and issuing debt. This re-levering is most pronounced when unions win the strike, and is consistent with the idea that firms use leverage to bolster their bargaining power prior to the next contract negotiation. When companies win the strike, they do not increase leverage, consistent with the idea that they are satisfied with their bargaining position.

Keywords: Capital structure, Unions, Strikes