Organized labor, corporate governance, and stock price crash risk

Qunfeng Liao and Bo Ouyang

Review of Accounting and Finance, 2017, vol. 16, issue 4, 424-443

Abstract: Purpose - The aim of the paper is to investigate the effect of labor strength on stock price crash risk and related moderating mechanisms. Design/methodology/approach - To examine the relationship between labor unions and stock price crash risk and, more importantly, whether corporate governance moderates this relationship. Ordinary least squares (OLS), two-stage least squares, cross-sectional analyses, industry-level regressions and firm-level regressions are conducted. Findings - The results suggest a negative impact of labor union strength on stock price crash risk. Further analysis suggests strong corporate governance mechanisms may mitigate the increased stock price crash risk in less-unionized firms. Originality/value - Labor unions have a long-term horizon in the firm and have strong incentives to monitor managerial opportunism. However, labor unions may also increase financial reporting opacity and collude with managers to gain bargaining power in labor negotiations. The authors’ finding suggests that labor union strength is negatively associated with stock price crash risk. This finding is consistent with the notion that labor unions curb managerial opportunism in information disclosure, resulting in reduced crash risk. More importantly, the authors find corporate governance mitigates the negative impact of reduced unionization on crash risk, providing empirical support for recent regulatory efforts to strengthen corporate governance to prevent stock market crash.

Keywords: Corporate governance; Labor union; Stock market price crash (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:rafpps:raf-01-2016-0006

DOI: 10.1108/RAF-01-2016-0006

Access Statistics for this article

Review of Accounting and Finance is currently edited by Nawazish Mirza

More articles in Review of Accounting and Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().