Capital Structure as a Strategic Variable: Evidence from Collective Bargaining

62 Pages Posted: 2 Oct 2006 Last revised: 15 Mar 2014

Date Written: July 28, 2009


I analyze the strategic use of debt financing to improve a firm's bargaining position with an important supplier -- organized labor. Because maintaining high levels of corporate liquidity can encourage workers to raise their wage demands, a firm with external finance constraints has an incentive to use the cash flow demands of debt service to improve its bargaining position with workers. Using both firm-level collective bargaining coverage and state changes in labor laws to identify changes in union bargaining power, I show that strategic incentives from union bargaining appear to have a substantial impact on corporate financing decisions.

Keywords: strategic investment, strategic capital structure, collective bargaining, union rent sharing, right-to-work laws, unemployment insurance work stoppage provision, buffer inventories

JEL Classification: D21, G32, J51, L14

Suggested Citation

Matsa, David A., Capital Structure as a Strategic Variable: Evidence from Collective Bargaining (July 28, 2009). Journal of Finance, Forthcoming, Available at SSRN:

David A. Matsa (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8337 (Phone)
847-491-5719 (Fax)

National Bureau of Economic Research (NBER) ( email )

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