 Shadow union in local labor markets and corporate financing policiesDuckKi Cho and Lyungmae Choi Journal of Corporate Finance, 2024, vol. 89, issue C Abstract: This paper identifies an externality of a firm’s unionization that affects the financing decisions of non-unionized firms within a local labor market. We find that non-unionized firms increase their leverage ratios and hold less cash reserves following a union victory at other firms. This “shadow union” effect manifests through the heightened threat of unionization following shadow union organizing. Specifically, the effect is more pronounced when the probability of unionization rises by a larger margin and non-union firms face higher union rents conditional on being unionized. The threat appears credible enough to shape corporate financing decisions: shadow unions raise employees’ wages and the likelihood of subsequent union victories in the local labor market. Additional results indicate that the shadow union effect is distinct from leverage-mimicking behavior. Overall, our findings suggest that shadow labor market institutions create a strategic incentive for non-unionized firms to adopt less conservative financial policies to combat the union threat. Keywords: Shadow union; Local labor market; Threat of unionization; Corporate financing (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:89:y:2024:i:c:s0929119924001068 DOI: 10.1016/j.jcorpfin.2024.102644 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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