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
Date Written: September 24, 2010
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: Suggested Citation