The strategic use of corporate cash holdings in collective bargaining with labor unions

We provide evidence that firms in more unionized industries strategically hold less cash to gain bargaining advantages over labor unions and shelter corporate income from their demands. Specifically, we show that corporate cash holdings are negatively related with unionization. We also find that thi...

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Bibliographic Details
Published in:Journal of financial economics 2009-06, Vol.92 (3), p.421-442
Main Authors: Klasa, Sandy, Maxwell, William F., Ortiz-Molina, Hernán
Format: Article
Language:English
Subjects:
Bargaining power
Business management
Cash flow
Cash holdings
Cash holdings Corporate liquidity policy Labor unions
Cash management
Collective bargaining
Corporate liquidity policy
Correlation analysis
Labor unions
Labour relations
Liquidity
Probability
Strikes
Studies
Trade unions
Unionization
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Summary:We provide evidence that firms in more unionized industries strategically hold less cash to gain bargaining advantages over labor unions and shelter corporate income from their demands. Specifically, we show that corporate cash holdings are negatively related with unionization. We also find that this relation is stronger for firms that are likely to place a higher value on gaining a bargaining advantage over unions and weaker for those firms in which lower cash holdings provide less credible evidence that a firm is unable to concede to union demands. Additionally, we show that for unionized firms increases in cash holdings raise the probability of a strike. Finally, we show that unionization decreases the market value of a dollar of cash holdings. Overall, our findings indicate that firms trade-off the benefits of corporate cash holdings with the costs resulting from a weaker bargaining position with labor.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2008.07.003