The Role of Government in the Labor-Creditor Relationship: Evidence from the Chrysler Bankruptcy
47 Pages Posted: 22 Aug 2011 Last revised: 2 Sep 2015
Date Written: August 13, 2013
We examine the role of government in the labor-creditor relationship using the case of the Chrysler bankruptcy. As a result of the government intervention, firms in more unionized industries experienced lower event-window abnormal bond returns, higher abnormal bond yields, and lower cumulative abnormal bond returns. The results are stronger for firms closer to distress. We also observe the effect in firms in which labor bargaining power is stronger and those with larger pension liabilities. Overall, the results underline the importance of government as a significant force in shaping the agency conflict between creditors and workers.
Keywords: Organized Labor, Bankruptcy, Government Intervention, Cost of Debt
JEL Classification: G32, G33, G38
Suggested Citation: Suggested Citation