The Impact of Labor Unionization on Corporate Overinvestment and Underinvestment
54 Pages Posted: 23 Jan 2016 Last revised: 9 Mar 2016
Date Written: March 1, 2016
We document that labor unionization rates are associated with lower levels of managerial overinvestment and underinvestment for a sample of 3,731 U.S. publicly traded firms over the period 1983-2013. This result is consistent with the explanation that labor unions can play a governance role in improving corporate investment efficiency. The unionization effects are generally stronger in bargaining environments that are favorable to unions. We also find that union monitoring associated with mitigating overinvestment improves future profitability but find no such pattern in instances of underinvestment.
Keywords: labor unions, overinvestment, underinvestment, investment efficiency, bargaining power
JEL Classification: G31, J51
Suggested Citation: Suggested Citation