The Impact of Labor Unionization on Corporate Overinvestment and Underinvestment

54 Pages Posted: 23 Jan 2016 Last revised: 9 Mar 2016

See all articles by Yong-Chul Shin

Yong-Chul Shin

University of Massachusetts Boston

Surjit Tinaikar

University of Massachusetts Boston

Yu Zhang

University of Houston

Date Written: March 1, 2016

Abstract

We document that labor unionization rates are associated with lower levels of managerial overinvestment and underinvestment for a sample of 3,731 U.S. publicly traded firms over the period 1983-2013. This result is consistent with the explanation that labor unions can play a governance role in improving corporate investment efficiency. The unionization effects are generally stronger in bargaining environments that are favorable to unions. We also find that union monitoring associated with mitigating overinvestment improves future profitability but find no such pattern in instances of underinvestment.

Keywords: labor unions, overinvestment, underinvestment, investment efficiency, bargaining power

JEL Classification: G31, J51

Suggested Citation

Shin, Yong-Chul and Tinaikar, Surjit and Zhang, Yu, The Impact of Labor Unionization on Corporate Overinvestment and Underinvestment (March 1, 2016). Available at SSRN: https://ssrn.com/abstract=2719787 or http://dx.doi.org/10.2139/ssrn.2719787

Yong-Chul Shin

University of Massachusetts Boston ( email )

Boston, MA 02125
United States

Surjit Tinaikar (Contact Author)

University of Massachusetts Boston ( email )

100 William T Morrissey Blvd
Boston, MA 02125
United States

Yu Zhang

University of Houston

4800 Calhoun Road
Houston, TX 77204
United States

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