Working Paper: CEPR ID: DP12595
Authors: Martin Schmalz
Abstract: What is the effect of unionization on corporate financial policies? The average unionized firm responds with lower cash and higher leverage to a unionization election than the average firm escaping unionization. However, using a regression discontinuity design I find that the causal effect of unionization is close to zero on average, but heterogeneous across firms. For the subset of large and financially unconstrained firms, the causal effect is positive on leverage and negative on cash; the opposite is true for small and financially constrained firms. These results help reconcile controversially discussed views on how corporate finance and labor interact.
Keywords: capital structure; cash; risk management; labor adjustment costs; unionization; regression discontinuity
JEL Codes: G32; J50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Unionization (J51) | Cash-to-assets ratio (G32) |
| Unionization (J51) | Leverage (G32) |
| Unionization (large, financially unconstrained firms) (J51) | Leverage (G32) |
| Unionization (large, financially unconstrained firms) (J51) | Cash-to-assets ratio (G32) |
| Unionization (small, financially constrained firms) (J51) | Cash-to-assets ratio (G32) |
| Unionization (small, financially constrained firms) (J51) | Leverage (G32) |
| Unionization (J51) | Corporate financial policies (G38) |