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

Abstract

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

Yi, Irene, Slashing Liquidity Through Asset Purchases: Evidence from Collective Bargaining (November 15, 2016). Available at SSRN: https://ssrn.com/abstract=2862397 or http://dx.doi.org/10.2139/ssrn.2862397

Irene Yi (Contact Author)

University of Toronto ( email )

Toronto
Canada

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