Organized labor, corporate governance, and stock price crash risk

Abstract

Purpose The aim of the paper is to investigate the effect of labor strength on stock price crash risk and related moderating mechanisms. Design/methodology/approach To examine the relationship between labor unions and stock price crash risk and, more importantly, whether corporate governance moderates this relationship. Ordinary least squares (OLS), two-stage least squares, cross-sectional analyses, industry-level regressions and firm-level regressions are conducted. Findings The results suggest a negative impact of labor union strength on stock price crash risk. Further analysis suggests strong corporate governance mechanisms may mitigate the increased stock price crash risk in less-unionized firms. Originality/value Labor unions have a long-term horizon in the firm and have strong incentives to monitor managerial opportunism. However, labor unions may also increase financial reporting opacity and collude with managers to gain bargaining power in labor negotiations. The authors’ finding suggests that labor union strength is negatively associated with stock price crash risk. This finding is consistent with the notion that labor unions curb managerial opportunism in information disclosure, resulting in reduced crash risk. More importantly, the authors find corporate governance mitigates the negative impact of reduced unionization on crash risk, providing empirical support for recent regulatory efforts to strengthen corporate governance to prevent stock market crash.

The Impact of Firm Characteristics on Future Stock Price Crash Risk: Evidence from Egypt

“…In addition, the mean value of ROA as an indicator of accounting performance was (0.019) With a minimum and a maximum (-1.316, 0.253) respectively, which reveals that Egyptian firms performed financially well during the research period, which was similar to that reported by Liao & Ouyang (2017) which reached (0.039), but less than the mean value of Ben-Nasr & Ghouma (2018) which was (0.106), and Callen & Fang (2015) which was (0.1120). Whereas, the mean value of ROE was (0.069) which also reveals that Egyptian firms performed financially well during the research period.…”

“…Future Stock Price Crash risk (FSPCR) is an undesirable event in business as asymmetric differences in stock returns may reduce shareholder wealth and, as a result, have a negative impact on the stability, growth, and development of the capital market (Sultana et al, 2022). Despite the fact that FSPCR has been an ongoing issue for investors and the government ever since significant corporate frauds occurred in the early 2000s, they concentrated more on research into it following the 2008 financial crisis (Liao & Ouyang 2017;Chen et al, 2017a;Silva, 2019). FSPCR disturbs investor confidence, decreases shareholder value, raises financial market volatility, and affects equity valuation, and option pricing (Jin & Myers, 2006;Zhu, 2016;Habib et al, 2018).…”

Does intellectual capital have any influence on stock price crash risk?

“…Ben-Nasr and Ghouma (2018) explained that employee welfare is also a factor that contributes to the risk of stock price crashes. Further analysis shows that a strong corporate governance mechanism can reduce the risk of rising stock price crashes in less unionized companies and that there is a negative impact of union strength on the risk of stock price crashes (Liao and Ouyang, 2017). Meanwhile, Anifowose et al (2017) showed a positive relationship between IC as a whole and the market capitalization value of a company.…”

Stock price crash risk and the adoption of poison pills: evidence from Brazil

“…, 2016; Hu et al. , 2020; Jeon, 2019; Liao and Ouyang, 2017). Among the mechanisms addressed by the fifth line of inquiry (which seeks to analyze the informal mechanisms associated with a higher stock price crash risk), there are not so approached factors such as religion (Callen and Fang, 2015; Li and Cai, 2016), individualism (An et al.…”

“…There is a thin line between the fourth line of inquiry and the other lines of inquiries previously mentioned, since some studies navigate between two or more lines. However, numerous studies seek to analyze the impacts of corporate governance on stock price crash risk more directly (Andreou et al, 2016;Hu et al, 2020;Jeon, 2019;Liao and Ouyang, 2017). Among the mechanisms addressed by the fifth line of inquiry (which seeks to analyze the informal mechanisms associated with a higher stock price crash risk), there are not so approached factors such as religion (Callen and Fang, 2015;Li and Cai, 2016), individualism (An et al, 2018), gambling preferences (Ji et al, 2021) and the degree of confidence between individuals in a society (Cao et al, 2016;Li et al, 2017).…”