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Employee lawsuits and business downsizing: Evidence from labor unions

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  • Unsal, Omer

Abstract

In this paper, we examine how employee lawsuits are related to firms’ business decisions. By using union-filed lawsuit data, we document that litigation increases the likelihood of firms downsizing their businesses. Furthermore, cases filed by unions lead to an increase in both the number of store closures and the number of employees affected by these closures. We demonstrate that violations related to labor have a significant negative impact on operating performance. Our findings reveal the fact that the cost of labor, damage to reputation, legal liabilities, and diverted resources resulting from litigation damages firms’ new business opportunities. Overall, our results highlight the importance of employee treatment at the workplace, which affects corporate decisions.

Suggested Citation

  • Unsal, Omer, 2024. "Employee lawsuits and business downsizing: Evidence from labor unions," Journal of Financial Stability, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:finsta:v:74:y:2024:i:c:s1572308924001037
    DOI: 10.1016/j.jfs.2024.101318
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    More about this item

    Keywords

    Employee treatment; Labor unions; Business downsizing; Labor lawsuits;
    All these keywords.

    JEL classification:

    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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