Capital Structure and Reversible Bargaining Tools: Theory and Evidence from Union-Sponsored Shareholder Proposals

52 Pages Posted: 27 Nov 2017 Last revised: 22 Feb 2022

See all articles by Alberta Di Giuli

Alberta Di Giuli

ESCP

Rafael Matta

SKEMA Business School - Université Côte d'Azur

Arthur Petit-Romec

Toulouse Business School

Date Written: February 1, 2018

Abstract

We model the interplay of capital structure and labor union reversible bargaining tools (such as union-sponsored shareholder proposals). Unions counter firms’ ex-post strategic use of debt by employing bargaining tools that can be reversed depending on the state of nature. Firms adjust debt ex ante to make underinvestment a credible threat if the bargaining tools are not reversed. The use of reversible bargaining tools is negatively affected by debt, drops in low states for riskier firms, and reduces the profits of safer firms. Consistently, union-sponsored shareholder proposals decrease in leverage, drop for riskier firms during the 2008-2009 financial crisis, and negatively relate to safer firms’ profitability.

Keywords: Leverage, Capital Structure, Unions, Labor Unions, Shareholder Proposals

JEL Classification: G32, J51, J53

Suggested Citation

Di Giuli, Alberta and Matta, Rafael and Petit-Romec, Arthur, Capital Structure and Reversible Bargaining Tools: Theory and Evidence from Union-Sponsored Shareholder Proposals (February 1, 2018). Paris December 2018 Finance Meeting EUROFIDAI - AFFI, Available at SSRN: https://ssrn.com/abstract=3074524 or http://dx.doi.org/10.2139/ssrn.3074524

Alberta Di Giuli

ESCP ( email )

Paris Campus
79, Avenue de la Republique
Paris, 75011
France

Rafael Matta

SKEMA Business School - Université Côte d'Azur ( email )

60 rue Dostoïevski
Sophia Antipolis, 06902
France

HOME PAGE: http://https://sites.google.com/site/almeidadamatta/

Arthur Petit-Romec (Contact Author)

Toulouse Business School ( email )

20, bd Lascrosses
Toulouse, 31068
France

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