Does Capital Structure Affect the Behavior of Non-Financial Stakeholders? An Empirical Investigation into Leverage and Union Strikes

34 Pages Posted: 11 Aug 2011 Last revised: 11 Feb 2016

See all articles by Brett W. Myers

Brett W. Myers

Texas Tech, Rawls College of Business

Alessio Saretto

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics

Date Written: September 4, 2015

Abstract

We use contract negotiation data to study how leverage affects the interaction between firms and an important non-financial stakeholder, labor unions. Consistent with the idea that leverage diminishes the bargaining position of labor, we find that unions are less likely to strike when a firm has high leverage or increases leverage prior to a contract negotiation. We also find large leverage increases after a strike, consistent with the idea that firms intentionally use leverage to improve their bargaining position. This post-strike increase in leverage particularly pronounced when the union wins the strike. Moreover, we do not find any clear indication that such increases in leverage are linked to changes in investments. In addition, firms that experience a strike subsequently invest more internationally and in right-to-work states where union are afforded fewer legal protections, and they increase their disposal of production units that are located in states where strikes have occurred.

Keywords: leverage, non-financial stakeholders, contract negotiations, union strikes

JEL Classification: G32, J52

Suggested Citation

Myers, Brett W. and Saretto, Alessio, Does Capital Structure Affect the Behavior of Non-Financial Stakeholders? An Empirical Investigation into Leverage and Union Strikes (September 4, 2015). Available at SSRN: https://ssrn.com/abstract=1907940 or http://dx.doi.org/10.2139/ssrn.1907940

Brett W. Myers

Texas Tech, Rawls College of Business ( email )

Lubbock, TX 79407
United States

Alessio Saretto (Contact Author)

University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics ( email )

800 Campbell Road
SM 31
Richardson, TX 75080
United States
972-883-5907 (Phone)

HOME PAGE: http://www.utdallas.edu/~axs125732

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