Bankruptcy and the Cost of Organized Labor: Evidence from Union Elections

57 Pages Posted: 21 Aug 2015 Last revised: 26 Mar 2016

Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Janet Gao

Indiana University - Kelley School of Business

Jiaping Qiu

McMaster University - Michael G. DeGroote School of Business

Yue Zhang

McMaster University

Multiple version iconThere are 2 versions of this paper

Date Written: March 26, 2016

Abstract

Arguments that worker unionization leads to changes in productivity, employment, or business survival find little support in the literature. While unionization may have limited impact in good states, unionized workers are entitled to special treatment in bankruptcy court. This shift in bargaining power can be detrimental to other corporate stakeholders in default states, with senior, unsecured creditors standing to lose the most. We gather data on union elections covering several decades and employ a regression discontinuity design to identify the effect of worker unionization on bondholders' wealth. Closely-won union elections lead to significant losses to bond values but do not lead to poorer firm performance or higher default risk. Critically, unionization is associated with longer proceedings in bankruptcy court, with more bankruptcy emergences and subsequent refilings, and with higher fees and expenses paid to lawyers and financial experts in court. All of these costs diminish corporate asset values, aggravating bondholders' losses. The value effect of unionization is weaker in states where unions have been undermined by right-to-work laws.

Keywords: Unionization, Bond Values, Regression Discontinuity Design, Bankruptcy Costs

JEL Classification: G32, G33, J50

Suggested Citation

Campello, Murillo and Gao, Janet and Qiu, Jiaping and Zhang, Yue, Bankruptcy and the Cost of Organized Labor: Evidence from Union Elections (March 26, 2016). Kelley School of Business Research Paper No. 15-61 (First version: July 2015). Available at SSRN: https://ssrn.com/abstract=2647614 or http://dx.doi.org/10.2139/ssrn.2647614

Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

114 East Avenue
369 Sage Hall
Ithaca, NY 14853
United States

HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=mnc35

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138

Janet Gao (Contact Author)

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

Jiaping Qiu

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Yue Zhang

McMaster University ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

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