Organized Labor and Inventory Stockpiling

Posted: 25 Jan 2018

See all articles by Sophia Hamm

Sophia Hamm

Tulane University - A.B. Freeman School of Business

Boochun Jung

University of Hawaii at Manoa - School of Accountancy

Woo-Jong Lee

Seoul National University

Daniel G. Yang

Ohio State University (OSU) - Fisher College of Business

Date Written: January 18, 2018

Abstract

The literature suggests that the presence of a labor union poses operational risk for firms by reducing operating flexibility. We posit that managers stockpile inventory in response to their heightened operational risk, such as potential strikes, so that managers maintain bargaining power in labor negotiations. Using various union and abnormal inventory measures, we find that union strength is positively associated with firms’ inventory holdings. The association is more pronounced (1) if the employees are more skilled and highly paid and therefore are harder to replace, (2) if the firm belongs to a more competitive industry in which inventory stock-out is more detrimental, and (3) if the firm’s operating cycle is longer. In addition, we find that the excess inventory accumulated because of a union is detrimental to future performance. Finally, based on the premise that perceived operational risk is made evident by a strike’s occurrence, we predict and find that firms’ abnormal inventory significantly increases after strikes.

Keywords: labor union, inventory, investment efficiency, strike

JEL Classification: G31, J52, J53

Suggested Citation

Hamm, Sophia and Jung, Boochun and Lee, Woo-Jong and Yang, Daniel G., Organized Labor and Inventory Stockpiling (January 18, 2018). Available at SSRN: https://ssrn.com/abstract=3104700 or http://dx.doi.org/10.2139/ssrn.3104700

Sophia Hamm (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Boochun Jung

University of Hawaii at Manoa - School of Accountancy ( email )

College of Business Administration
Honolulu, HI 96822
United States

Woo-Jong Lee

Seoul National University ( email )

Gwanak-ro 1, Gwanak-gu
Seoul, 151-916
Korea, Republic of (South Korea)

Daniel G. Yang

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

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