Do Labor Unions Always Lead to Underinvestment?

51 Pages Posted: 13 Sep 2012 Last revised: 24 May 2016

See all articles by Hyungjin Cho

Hyungjin Cho

Inha University - College of Business Administration

Bryan Byung-Hee Lee

Deakin University; University of Macau

Woo-Jong Lee

Seoul National University

Byungcherl Charlie Sohn

University of Macau - Department of Accounting and Information Management

Date Written: May 18, 2016

Abstract

We examine the relation between labor union strength and investment efficiency using comprehensive firm-level data of Korean listed companies. We find that the perceived underinvestment related to unionization documented in previous studies is attributable to a negative relation between union strength and investment in overinvesting firms. In fact, union strength is positively related to the level of investment in underinvesting firms. We further find that the relation between union strength and investment efficiency is more pronounced for chaebol firms where inefficient investments are more likely due to greater agency problems between the controlling and minority shareholders. Finally, we document that the investment has more positive value implications in firms with a stronger union. Our results suggest that unions play an important role as a non-financial stakeholder in curbing inefficient investments.

Keywords: Labor union, investment efficiency, overinvestment, underinvestment, chaebol

JEL Classification: G30, G31, J53, J54, M41, M54

Suggested Citation

Cho, Hyungjin and Lee, Bryan Byung-Hee and Lee, Woo-Jong and Sohn, Byungcherl Charlie, Do Labor Unions Always Lead to Underinvestment? (May 18, 2016). Journal of Management Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2145244 or http://dx.doi.org/10.2139/ssrn.2145244

Hyungjin Cho

Inha University - College of Business Administration ( email )

Incheon
Korea, Republic of (South Korea)

Bryan Byung-Hee Lee

Deakin University ( email )

75 Pigdons Road
Victoria, Victoria 3216
Australia

University of Macau ( email )

Av. Padre Tomas Pereira
Taipa
Macau, No zipcode
Macau
+853-6208-0424 (Phone)

HOME PAGE: http://www.umac.mo

Woo-Jong Lee (Contact Author)

Seoul National University ( email )

Gwanak-ro 1, Gwanak-gu
Seoul, 151-916
Korea, Republic of (South Korea)

Byungcherl Charlie Sohn

University of Macau - Department of Accounting and Information Management ( email )

Ave. Padre Tomas Pereira
Taipa
Macau
China

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