Collective bargaining power and corporate cash policy
Muhammad Farooq Ahmad () and
Oskar Kowalewski ()
No 2020-ACF-06, Working Papers from IESEG School of Management
This paper provides novel evidence on the role of labor unions in firms’ corporate cash policy. Examining the unionization rates of firms across 29 countries for the period 2004–2015, we show that firms respond to an increase in unionization rate by decreasing their corporate cash holdings. The reported effect is symmetric, in that firms respond to increases (decreases) in unionization rate by decreasing (increasing) their cash buffers. These results are consistent with the bargaining hypothesis, namely, that firms strategically decrease their cash level to counter the rise in employees’ bargaining power due to increased unionization. These findings are robust to different unionization variable constructions, alternative dependent variable definitions, controlling for potentially correlated time-variant firm characteristics, saturation of a dense set of fixed effects, and endogeneity concerns. Additionally, the negative effect of unionization on cash holdings is more pronounced in labor-intensive, large, high-growth, highprofitability, and low labor productive firms. The countries’ quality of institutions intensifies the documented relationship.
Keywords: Corporate finance; Labor Unions; Cash; Institutions (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 G32 J50 (search for similar items in EconPapers)
Pages: 31 pages
New Economics Papers: this item is included in nep-big, nep-cmp, nep-ent, nep-fdg, nep-ino and nep-pay
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Journal Article: Collective bargaining power and corporate cash policy (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ies:wpaper:f202006
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