Discussion Paper Details

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Title: Unionization, Cash, and Leverage

Author(s): Martin Schmalz

Publication Date: January 2018

Keyword(s): Capital Structure, cash, Labor Adjustment Costs, Regression Discontinuity, Risk management and Unionization

Programme Area(s): Financial Economics and Labour Economics

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.

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Bibliographic Reference

Schmalz, M. 2018. 'Unionization, Cash, and Leverage'. London, Centre for Economic Policy Research.