Slashing Liquidity Through Asset Purchases: Evidence from Collective Bargaining
60 Pages Posted: 1 Nov 2016 Last revised: 20 Apr 2020
Date Written: November 15, 2016
Using a hand-matched data set on 27,284 union contracts, this paper provides evidence on the strategic use of corporate liquidity in union negotiations. Theory and evidence suggest that unionized firms reduce liquidity to enhance bargaining positions, but the important question of how firms achieve their goal is largely unexplored. My main finding is that firms reduce liquidity mainly through asset purchases and M&As before union negotiations, and finance those purchases by reducing cash balances and increasing leverage. Firms do not increase dividends, repurchases, R&D, or capital expenditures. Strategic liquidity reduction is associated with lower wages.
Keywords: corporate liquidity, asset purchases, mergers, unions
JEL Classification: G30, G34, J51, J52
Suggested Citation: Suggested Citation