Do Labor Unions Always Lead to Underinvestment?

We examine the relation between labor union strength and investment efficiency using the comprehensive firm-level data of Korean-listed companies. We find that the perceived underinvestment related to unionization documented in previous studies is attributable to a negative relation between union st...

Full description

Saved in:
Bibliographic Details
Published in:Journal of management accounting research 2017-03, Vol.29 (1), p.45-66
Main Authors: Cho, Hyungjin, Lee, Bryan Byung-Hee, Lee, Woo-Jong, Sohn, Byungcherl Charlie
Format: Article
Language:English
Subjects:
Investments
Labor unions
Management accounting
Studies
Unionization
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We examine the relation between labor union strength and investment efficiency using the comprehensive firm-level data of Korean-listed companies. We find that the perceived underinvestment related to unionization documented in previous studies is attributable to a negative relation between union strength and investment in overinvesting firms. In fact, union strength is positively related to the level of investment in underinvesting firms. We further find that the relation between union strength and investment efficiency is more pronounced for chaebol firms where inefficient investments are more likely due to greater agency problems between the controlling and minority shareholders. Finally, we document that the investment has more positive value implications in firms with a stronger union. Our results suggest that unions play an important role as a nonfinancial stakeholder in curbing inefficient investments. JEL Classifications: G30; G31; J53; J54; M41; M54.
ISSN:1049-2127
1558-8033
DOI:10.2308/jmar-51534