Power Game between the CEO and Labor: Evidence from Outsourcing

57 Pages Posted: 15 Mar 2010

See all articles by Jongmoo Jay Choi

Jongmoo Jay Choi

Temple University; National Bureau of Economic Research (NBER); Temple University - International Business

Jose M. Plehn-Dujowich

Powerlytics. Inc.

Xiaotian Tina Zhang

Saint Mary's College of California

Date Written: January 2010

Abstract

Prior studies of CEO power have mostly focused on internal corporate governance as the balance of CEO power but neglected the effect of labor. We attempt to explore the power play between the CEO and labor in a special type of corporate restructuring - outsourcing. Fundamentally, outsourcing may be potentially desirable because of cost saving and the value of flexibility. However, to make it happen, the CEO must negotiate with labor that may resist outsourcing because of its concern for jobs. Yet without outsourcing, the firm may lose out competitively and labor may lose even more. This paper develops a theoretical rationale for the power between the CEO and labor, and empirically examines the extent to which outsourcing decisions and its outcomes depend on CEO power and labor participation in major corporate decisions. Using the sample of US firms, we observe that the probability of outsourcing is positively related to CEO power and negatively associated with labor power. Our results also demonstrate that both CEO and labor power affects to their share of profits. We further show both a dominant CEO and powerful labor are correlated to long-term firm performance, as well as short-term market valuations.

Keywords: CEO power, Labor resistance, Corporate restructuring, Outsourcing

JEL Classification: G14, G34, F23, J52

Suggested Citation

Choi, Jongmoo Jay and Plehn-Dujowich, Jose M. and Zhang, Xiaotian Tina, Power Game between the CEO and Labor: Evidence from Outsourcing (January 2010). Available at SSRN: https://ssrn.com/abstract=1570704 or http://dx.doi.org/10.2139/ssrn.1570704

Jongmoo Jay Choi

Temple University ( email )

Fox School of Business
Temple University
Philadelphia, PA 19122
United States
215-204-5084 (Phone)
215-204-1697 (Fax)

HOME PAGE: http://astro.temple.edu/~jjchoi

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Temple University - International Business ( email )

Philadelphia, PA 19122
United States

Jose M. Plehn-Dujowich (Contact Author)

Powerlytics. Inc. ( email )

P.O. Box 164
Mechanicsville, PA 18934
United States

Xiaotian Tina Zhang

Saint Mary's College of California ( email )

United States

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