Labor Voice in Corporate Governance: Evidence from Opportunistic Insider Trading
62 Pages Posted: 7 Feb 2020 Last revised: 11 Mar 2020
Date Written: March 05, 2020
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: Suggested Citation