Do Non-Financial Stakeholders Affect the Pricing of Risky Debt? Evidence from Unionized Workers

Review of Finance, Forthcoming

47 Pages Posted: 24 Mar 2008 Last revised: 28 Sep 2010

See all articles by Huafeng (Jason) Chen

Huafeng (Jason) Chen

Fudan University - Fanhai International School of Finance (FISF)

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics; National Bureau of Economic Research (NBER)

Hernan Ortiz-Molina

University of British Columbia (UBC) - Sauder School of Business

Date Written: September 24, 2010

Abstract

We study the impact of a powerful non-financial stakeholder – unionized workers – on the pricing of corporate debt. Firms in more unionized industries have lower bond yields. This relation is stronger in firms with weaker financial conditions and cannot be explained by the correlation of unionization with industry characteristics, governance mechanisms, or financial leverage. Firms in unionized industries implement less risky investment policies, and are less likely targets of acquisitions. Unionization reduces yields by more when firms’ takeover barriers are lower. Hence, unions are viewed favorably in the bond market because, through their influence on corporate affairs, they protect bondholders’ wealth.

Keywords: debt pricing, non-financial stakeholders, labor unions, shareholder-bondholder conflicts

JEL Classification: G32, G34

Suggested Citation

Chen, Huafeng (Jason) and Kacperczyk, Marcin T. and Ortiz-Molina, Hernan, Do Non-Financial Stakeholders Affect the Pricing of Risky Debt? Evidence from Unionized Workers (September 24, 2010). Review of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=972046 or http://dx.doi.org/10.2139/ssrn.972046

Huafeng (Jason) Chen

Fudan University - Fanhai International School of Finance (FISF) ( email )

220 Handan Road
Shanghai, 200433
China

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics ( email )

South Kensington campus
London SW7 2AZ
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hernan Ortiz-Molina (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-6095 (Phone)
604-822-4695 (Fax)

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