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Payout Policy Under Enhanced Labor Power: Evidence from a New Approach

60 Pages Posted: 17 Jan 2016 Last revised: 11 Sep 2017

Jie He

University of Georgia - Department of Finance

Xuan Tian

Tsinghua University - PBC School of Finance

Huan Yang

University of Massachusetts Amherst - Department of Finance

Date Written: August 17, 2016

Abstract

We study labor power as an important but largely under-explored determinant of payout policy. Using a regression discontinuity design that exploits locally exogenous variation in labor’s collective bargaining power, we find that an increase in labor power generated by close-call union elections leads to a lower level of dividend and total payout in subsequent years. Operating flexibility appears to be a plausible underlying mechanism through which labor power influences corporate payout. Firms use the saved earnings from reductions in payout to invest in net working capital rather than paying off debt or increasing cash holdings. Our paper sheds new light on the determinants of payout policy and the role of labor power in corporate finance decisions.

Keywords: Payout policy, operating flexibility, labor unions, regression discontinuity design

JEL Classification: G35, G31, J51

Suggested Citation

He, Jie and Tian, Xuan and Yang, Huan, Payout Policy Under Enhanced Labor Power: Evidence from a New Approach (August 17, 2016). 2016 American Finance Association Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2716565 or http://dx.doi.org/10.2139/ssrn.2716565

Jie He (Contact Author)

University of Georgia - Department of Finance ( email )

B318 Amos Hall
Terry College of Business, University of Georgia
Athens, GA 30602-6253
United States

Xuan Tian

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

Huan Yang

University of Massachusetts Amherst - Department of Finance ( email )

121 Presidents Drive
Amherst, MA 01003
United States

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