Collective bargaining power and corporate cash policy

Abstract

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.

The Study of Unemployment in Business Perspective in Indonesia

“…In addition, we exploit economic shocks and show that the increase in unionization after the banking crisis negatively affects firms' cash levels. These findings are robust to different union variable constructs, alternative dependent variable definitions, controls for potentially correlated time-variant firm characteristics, saturation of a dense set of fixed effects, and endogeneity concerns (Ahmad & Kowalewski, 2021).…”