A Bright Side of Labor Union in Global Banks: Evidence from the Financial Crisis

Abstract

This paper examines whether labor unions affect the bank performance during recently financial crisis. The empirical evidence from 228 largest banks around the globe indicate that the buy-and-hold returns of unionized banks are higher and the default probabilities are lower during the crisis period when compared non-unionized banks. In addition, unionized banks experience a larger increase in tier 1 capital ratio in crisis years and have lower leverage ratio and tail risk in the pre-crisis year. These results suggest that banks adopt less risky investment and lending policies to accommodate the preference of unionized labor.

Keywords: Financial Crisis, Labor Union, Corporate Governance, Bank Performance, Default Probability

JEL Classification: G01, G21, G33, G34