Labor Unions and Corporate Cash Holdings: Evidence From International Data

Tong, Zhenxu; Huang, Hui

doi:10.1111/jfir.12152

Cited by 11 publications

(5 citation statements)

References 39 publications

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“…In contrast, the “open‐shop” model in many other countries means that relatively more employees are unionized; thus, managers’ incentives to reduce earnings may be greater. Our study thus paves the way for similar studies in an international setting, where earnings management after unionization may be more likely (Cullinan & Bline, 2003; Mora & Sabater, 2008; Tong & Huang, 2018).…”

Section: Introductionmentioning

confidence: 51%

“…In contrast, the "open-shop" model in many other countries means that relatively more employees are unionized; thus, managers' incentives to reduce earnings may be greater. Our study thus paves the way for similar studies in an international setting, where earnings management after unionization may be more likely (Cullinan & Bline, 2003;Mora & Sabater, 2008;Tong & Huang, 2018). 4 In addition, our study also contributes to the underexplored literature on the implicit-instead of explicitcontracting value of accounting numbers in employee contracts (Dichev & Skinner, 2002).…”

Section: Introductionmentioning

confidence: 55%

“…For example,Tong and Huang (2018) find that firms in countries with higher union membership have lower corporate cash holdings, consistent with firms strategically managing cash holdings to strengthen their bargaining position with labor. The negative relation is stronger for firms in countries with weaker employment protection legislation, firms in countries with a higher degree of labor bargaining centralization and financially constrained firms.5 For example, on April 29, 2020, the Ninth Circuit Court of Appeals affirmed an NLRB decision where an employer was lawfully permitted to refuse a union's request for financial information because it appropriately clarified its previous "inability to pay" statements and explained that it was only unwilling, not unable, to meet the union's wage demands (Fox Rothschild LLP, 2020; National Law Review, 2019).…”

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confidence: 74%

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The effect of unionization on firms’ earnings management and employee compensation: Evidence from a regression discontinuity design

Lin

Brown

2022

Business Fin & Account

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This study examines the effect of unionization on US firms’ accruals‐based earnings management and future employee compensation expenses by employing a research design that overcomes the inherent endogeneity issue of the relationship between unionization and earnings management. First, by comparing firms that just pass unionization by a small number of votes to those that just barely lose elections, the regression discontinuity design estimations document significant downward accruals earnings management for firms that barely pass unionization, compared to those that barely fail to pass unionization. Second, the association between unionization and earnings management is only significant in US states without right‐to‐work legislation, where unions are more powerful. These findings are consistent with recently unionized firms’ incentives to report lower earnings in order to mitigate unions’ demands for greater employee compensation. Further, for firms that barely pass unionization, we find that: (1) unions cannot fully “undo” the effects of earnings management, that is, downward managed earnings depress future compensation expenses, and (2) firms cannot fully “undo” the effects of unionization, that is, compensation expenses increase after unionization despite the downward earnings management.

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Section: Introductionmentioning

confidence: 51%

Section: Introductionmentioning

confidence: 55%

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confidence: 74%

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The effect of unionization on firms’ earnings management and employee compensation: Evidence from a regression discontinuity design

Lin

Brown

2022

Business Fin & Account

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“…Consequently, managers facing strong labor unions have incentives to safeguard firm resources and weaken union bargaining power. For instance, to lower union rents, firms have been shown to hold less cash (Klasa, Maxwell, & Ortiz‐Molina, 2009; Tong, 2015; Tong & Huang, 2018), increase leverage (Bronars & Deere, 1991), and reduce tax aggressiveness (Chyz, Leung, Li, & Rui, 2013).…”

Section: Introductionmentioning

confidence: 99%

Disclosure tone management and labor unions

Arslan‐Ayaydin

Thewissen

Torsin

2020

Business Fin & Account

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By analyzing the influence of labor unions on the narrative content of corporate disclosures, we provide empirical evidence that managers deflate the tone of earnings press releases in order to convey to unions a less optimistic image of firm financial performance. We find that the tone of the qualitative information in earnings press releases is significantly less optimistic as the degree of unionization increases, and particularly when financial performance is strong. The results of quasi‐natural experiments suggest that labor unions causally affect the use of tone deflation, and the deflation is stronger during labor negotiations. Our findings also indicate that labor unions lead to a significant weakening of the signaling value of the tone of earnings press releases in predicting future performance.

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“…Second, our study focuses on Korea; thus, our results may not be generalizable to other countries with different labor–management relations. Lastly, our study does not address the joint effect of unionization and financial statement comparability, which individually impact firms' decision-making (Habib et al ., 2017; Klasa et al ., 2009; Tong and Huang, 2018).…”

Section: Discussionmentioning

confidence: 99%

Labor unions, pay disparity and financial statement comparability

Jo,

Lee

2024

IJMF

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PurposeThis study examines how the presence of labor unions affects a firm’s pay disparity between executives and employees and its financial statement comparability.Design/methodology/approachIt uses firm-level labor union data in Korea and applies regression analyses to a sample of 1,776 firm-year observations from 2004 to 2008.FindingsThe authors find that unionized firms have a smaller pay disparity between executives and employees than non-unionized firms, suggesting that labor unions place pressure on the pay structure. Unionization also lowers financial statement comparability, which helps managers of unionized firms maintain information asymmetry. Further, this negative relationship between unionization and financial statement comparability is stronger in non-chaebol firms, implying that they are more motivated than chaebol firms to reduce their financial statement comparability in response to the presence of labor unions. In addition, the negative relationship between unionization and financial statement comparability is pronounced in profit-making firms, firms with less analyst following, firms with fewer foreign investors and firms in more competitive product markets.Research limitations/implicationsThe finding that firms adjust comparability in response to labor unions interests regulators and policymakers, who emphasize the role of comparability in providing usefulness to information users.Originality/valueThe findings add to the existing literature on the effect of labor unions on firms' pay structures and accounting choices.

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Labor Unions and Corporate Cash Holdings: Evidence From International Data

Cited by 11 publications

References 39 publications

The effect of unionization on firms’ earnings management and employee compensation: Evidence from a regression discontinuity design

The effect of unionization on firms’ earnings management and employee compensation: Evidence from a regression discontinuity design

Disclosure tone management and labor unions

Labor unions, pay disparity and financial statement comparability

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