Labor Voice in Corporate Governance: Evidence from Opportunistic Insider Trading

62 Pages Posted: 7 Feb 2020 Last revised: 11 Mar 2020

See all articles by Lilian K. Ng

Lilian K. Ng

York University - Schulich School of Business

Man Duy (Marty) Pham

The University of Western Australia

Jing Yu

The University of Sydney; Financial Research Network (FIRN)

Date Written: March 05, 2020

Abstract

This study examines the role of labor, an important corporate stakeholder, in corporate governance, particularly in how it disciplines opportunistic insider trading behavior. We find that firms with organized labor experience statistically significant declines in both opportunistic insider trading activity and profitability. This baseline evidence is robust to possible endogeneity concerns, alternative measures of insider trading activity, and conventional corporate governance measures. Labor voice is powerful in dampening insider opportunism through the employee welfare channel, labor unions' initiated shareholder proposals, and external mechanisms, including media and political support. The organized labor's role in improving corporate governance helps to enhance productivity and firm performance. Overall, insider trading in firms with organized labor is less predictive of future stock returns.

Keywords: Insider Trading; Labor Union; Corporate Governance

JEL Classification: G14; G31; M54

Suggested Citation

Ng, Lilian K. and Pham, Man and Yu, Jing, Labor Voice in Corporate Governance: Evidence from Opportunistic Insider Trading (March 05, 2020). Available at SSRN: https://ssrn.com/abstract=3313922 or http://dx.doi.org/10.2139/ssrn.3313922

Lilian K. Ng

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Man Pham (Contact Author)

The University of Western Australia ( email )

35 Stirling Highway
Crawley, WA 6009
Australia

Jing Yu

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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