Institutional Investors and Mispricing of Unionized Firms

Abstract

We examine investment by different types of institutional investors in firms with strong labor unions. We find that hedge funds own a lower percentage of shares in these firms than in other firms. On the other hand, passive institutional investors and institutional investors as a group own a higher percentage. Our tests suggest that the relation between unionization and hedge fund ownership is causal: when union power changes in a firm, hedge fund ownership changes in the opposite direction. Instead, passive investor holdings in unionized firms seem to be driven by other firm characteristics.

Keywords: Institutional investors, Hedge funds, Passive investors, Labor unions, Labor laws, Stock performance

JEL Classification: G14, G23, G38