Labor Unions and Corporate Financial Leverage: The Bargaining Device versus Crowding-out Hypotheses

We examine the empirical relation between labor unions and firm indebtedness in the contemporary United States. Our identification strategy exploits two negative exogenous shocks in union power and the threat of unionization. Further, in the context of panel regressions, we develop a novel firm-level proxy for the bargaining power of labor using collective bargaining information from mandatory IRS filings from 1999 to 2013. Across a battery of tests, we document evidence in favor of a crowding-out hypothesis - namely, a substitution effect between labor power and financial leverage. Notably, this effect is more pronounced in firms in labor-intensive and unionized industries.

Keywords: Labor Unions, Capital Structure, Bargaining, Operating Leverage, Natural Experiment

JEL Classification: J31, J51, G32, G33, K31

Suggested Citation: Suggested Citation

Woods, Keegan and Tan, Kelvin Jui Keng and Faff, Robert W., Labor Unions and Corporate Financial Leverage: The Bargaining Device versus Crowding-out Hypotheses (May 17, 2017). Journal of Financial Intermediation, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2497823 or http://dx.doi.org/10.2139/ssrn.2497823