Does unionization affect the manager–shareholder conflict? Evidence from firm-specific stock price crash risk

Journal of Corporate Finance, forthcoming; https://doi.org/10.1016/j.jcorpfin.2021.101991

68 Pages Posted: 11 Jun 2019 Last revised: 13 Jul 2022

See all articles by Jeong-Bon Kim

Jeong-Bon Kim

Simon Fraser University; City University of Hong Kong

Eliza Xia Zhang

University of Washington, Tacoma - Milgard School of Business

Kai Zhong

University of International Business and Economics (UIBE)

Date Written: May 25, 2021

Abstract

This study examines whether and how labor unionization influences firm-specific stock price crash risk. Using a regression discontinuity design that leverages locally exogenous variation in unionization generated by close union elections, we find that unionization leads to a significant decline in crash risk. We further explore the underlying mechanisms through which unionization affects crash risk and find that unions limit risk-taking, constrain overinvestment, and improve information flow, which in turn reduces crash risk. Overall, our study resolves some of the current debate over the implications of unions and sheds new light on their net impact on shareholder welfare.

Keywords: unionization, stock price crash risk, risk-taking, overinvestment, information flow

Suggested Citation

Kim, Jeong-Bon and Zhang, Eliza Xia and Zhong, Kai, Does unionization affect the manager–shareholder conflict? Evidence from firm-specific stock price crash risk (May 25, 2021). Journal of Corporate Finance, forthcoming; https://doi.org/10.1016/j.jcorpfin.2021.101991, Available at SSRN: https://ssrn.com/abstract=3394379 or http://dx.doi.org/10.2139/ssrn.3394379

Jeong-Bon Kim

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

City University of Hong Kong ( email )

Department of Accountancy
83 Tat Chee Avenue
Kowloon Tong
Hong Kong
852-3442-7909 (Phone)

Eliza Xia Zhang (Contact Author)

University of Washington, Tacoma - Milgard School of Business ( email )

1900 Commerce Street
Tacoma, WA 98402-3100
United States

Kai Zhong

University of International Business and Economics (UIBE) ( email )

10, Huixin Dongjie
Changyang District
Beijing, Beijing 100029
China

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