IDEAS home Printed from https://ideas.repec.org/a/eee/quaeco/v69y2018icp174-187.html
   My bibliography  Save this article

Labor unions and information asymmetry among investors

Author

Listed:
  • Xing, Xuejing
  • Yan, Shan

Abstract

We investigate whether and how labor unions affect information asymmetry among investors. To account for the endogeneity of unionization, we adopt an IV 2SLS model, a differences-in-differences technique, and Heckman’s (1979) two-stage procedure. We also explore an exogenous proxy for employees’ collective bargaining power. Using two samples, we find that after controlling for endogeneity, both industry- and firm-level unionization rates are significantly and negatively related to measures of information asymmetry among investors. The findings are consistent with the notion that labor unions or more broadly, employees with bargaining power, help reduce information asymmetry in capital markets.

Suggested Citation

  • Xing, Xuejing & Yan, Shan, 2018. "Labor unions and information asymmetry among investors," The Quarterly Review of Economics and Finance, Elsevier, vol. 69(C), pages 174-187.
    • Handle: RePEc:eee:quaeco:v:69:y:2018:i:c:p:174-187
    DOI: 10.1016/j.qref.2018.02.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062976917303915
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.qref.2018.02.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Xuejing Xing & John S. Howe & Randy I. Anderson & Shan Yan, 2017. "Labor Rights, Venture Capital, and Firm Performance," Financial Management, Financial Management Association International, vol. 46(1), pages 129-154, March.
    2. Huafeng (JASON) Chen & Marcin Kacperczyk & Hernán Ortiz-Molina, 2011. "Do Nonfinancial Stakeholders Affect the Pricing of Risky Debt? Evidence from Unionized Workers," Review of Finance, European Finance Association, vol. 16(2), pages 347-383.
    3. David Easley & Soeren Hvidkjaer & Maureen O'Hara, 2002. "Is Information Risk a Determinant of Asset Returns?," Journal of Finance, American Finance Association, vol. 57(5), pages 2185-2221, October.
    4. Joon Chae, 2005. "Trading Volume, Information Asymmetry, and Timing Information," Journal of Finance, American Finance Association, vol. 60(1), pages 413-442, February.
    5. Antonio Falato & Nellie Liang, 2016. "Do Creditor Rights Increase Employment Risk? Evidence from Loan Covenants," Journal of Finance, American Finance Association, vol. 71(6), pages 2545-2590, December.
    6. Aaron S. Edlin & Joseph E. Stiglitz, 2008. "Discouraging Rivals: Managerial Rent-Seeking and Economic Inefficiencies," Springer Books, in: Roger D. Congleton & Kai A. Konrad & Arye L. Hillman (ed.), 40 Years of Research on Rent Seeking 2, pages 609-620, Springer.
    7. ., 2001. "Corporate Governance in Islamic Banking," Chapters, in: Islamic Banking, chapter 7, Edward Elgar Publishing.
    8. Fallick, Bruce C & Hassett, Kevin A, 1999. "Investment and Union Certification," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 570-582, July.
    9. Monika Merz & Eran Yashiv, 2007. "Labor and the Market Value of the Firm," American Economic Review, American Economic Association, vol. 97(4), pages 1419-1431, September.
    10. John, Kose & Knyazeva, Anzhela & Knyazeva, Diana, 2015. "Employee rights and acquisitions," Journal of Financial Economics, Elsevier, vol. 118(1), pages 49-69.
    11. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-483, December.
    12. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    13. Faleye, Olubunmi & Mehrotra, Vikas & Morck, Randall, 2006. "When Labor Has a Voice in Corporate Governance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(3), pages 489-510, September.
    14. Carter, Richard B & Manaster, Steven, 1990. "Initial Public Offerings and Underwriter Reputation," Journal of Finance, American Finance Association, vol. 45(4), pages 1045-1067, September.
    15. Tirole, Jean, 2001. "Corporate Governance," Econometrica, Econometric Society, vol. 69(1), pages 1-35, January.
    16. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 91-134.
    17. Fama, Eugene F. & French, Kenneth R., 2005. "Financing decisions: who issues stock?," Journal of Financial Economics, Elsevier, vol. 76(3), pages 549-582, June.
    18. Sheng-Syan Chen & Yan-Shing Chen & Yanzhi Wang, 2015. "Does Labor Power Affect the Likelihood of a Share Repurchase?," Financial Management, Financial Management Association International, vol. 44(3), pages 623-653, September.
    19. Perotti, Enrico C & Spier, Kathryn E, 1993. "Capital Structure as a Bargaining Tool: The Role of Leverage in Contract Renegotiation," American Economic Review, American Economic Association, vol. 83(5), pages 1131-1141, December.
    20. David A. Matsa, 2010. "Capital Structure as a Strategic Variable: Evidence from Collective Bargaining," Journal of Finance, American Finance Association, vol. 65(3), pages 1197-1232, June.
    21. Ogden, Stuart & Bougen, Philip, 1985. "A radical perspective on the disclosure of accounting information to trade unions," Accounting, Organizations and Society, Elsevier, vol. 10(2), pages 211-224, April.
    22. Chen, Huafeng Jason & Kacperczyk, Marcin & Ortiz-Molina, Hernán, 2011. "Labor Unions, Operating Flexibility, and the Cost of Equity," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(1), pages 25-58, February.
    23. Malcolm Baker & Jeffrey Wurgler, 2007. "Investor Sentiment in the Stock Market," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 129-152, Spring.
    24. Frank, Murray Z. & Goyal, Vidhan K., 2003. "Testing the pecking order theory of capital structure," Journal of Financial Economics, Elsevier, vol. 67(2), pages 217-248, February.
    25. David Aboody & Baruch Lev, 2000. "Information Asymmetry, R&D, and Insider Gains," Journal of Finance, American Finance Association, vol. 55(6), pages 2747-2766, December.
    26. Leary, Mark T. & Roberts, Michael R., 2010. "The pecking order, debt capacity, and information asymmetry," Journal of Financial Economics, Elsevier, vol. 95(3), pages 332-355, March.
    27. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
    28. Ashwini K. Agrawal, 2012. "Corporate Governance Objectives of Labor Union Shareholders: Evidence from Proxy Voting," The Review of Financial Studies, Society for Financial Studies, vol. 25(1), pages 187-226.
    29. Francesco Bova, 2013. "Labor Unions and Management’s Incentive to Signal a Negative Outlook," Contemporary Accounting Research, John Wiley & Sons, vol. 30(1), pages 14-41, March.
    30. Ellwood, David T & Fine, Glenn, 1987. "The Impact of Right-to-Work Laws on Union Organizing," Journal of Political Economy, University of Chicago Press, vol. 95(2), pages 250-273, April.
    31. Dalia Marciukaityte, 2015. "Right-to-Work Laws and Financial Leverage," Financial Management, Financial Management Association International, vol. 44(1), pages 147-175, March.
    32. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
    33. McConnell, Sheena, 1989. "Strikes, Wages, and Private Information," American Economic Review, American Economic Association, vol. 79(4), pages 801-815, September.
    34. Tim Loughran & Jay Ritter, 2004. "Why Has IPO Underpricing Changed Over Time?," Financial Management, Financial Management Association, vol. 33(3), Fall.
    35. David S. Lee & Alexandre Mas, 2012. "Long-Run Impacts of Unions on Firms: New Evidence from Financial Markets, 1961--1999," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 333-378.
    36. Brambor, Thomas & Clark, William Roberts & Golder, Matt, 2006. "Understanding Interaction Models: Improving Empirical Analyses," Political Analysis, Cambridge University Press, vol. 14(1), pages 63-82, January.
    37. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    38. Armstrong, Christopher S. & Balakrishnan, Karthik & Cohen, Daniel, 2012. "Corporate governance and the information environment: Evidence from state antitakeover laws," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 185-204.
    39. Phillip C. Stocken, 2000. "Credibility of Voluntary Disclosure," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 359-374, Summer.
    40. Klasa, Sandy & Maxwell, William F. & Ortiz-Molina, Hernán, 2009. "The strategic use of corporate cash holdings in collective bargaining with labor unions," Journal of Financial Economics, Elsevier, vol. 92(3), pages 421-442, June.
    41. Gilles Hilary, 2006. "Organized Labor and Information Asymmetry in the Financial Markets," Post-Print hal-00482326, HAL.
    42. Julian Atanassov & E. Han Kim, 2009. "Labor and Corporate Governance: International Evidence from Restructuring Decisions," Journal of Finance, American Finance Association, vol. 64(1), pages 341-374, February.
    43. Lily Fang & Joel Peress, 2009. "Media Coverage and the Cross‐section of Stock Returns," Journal of Finance, American Finance Association, vol. 64(5), pages 2023-2052, October.
    44. Tracy, Joseph S, 1987. "An Empirical Test of an Asymmetric Information Model of Strikes," Journal of Labor Economics, University of Chicago Press, vol. 5(2), pages 149-173, April.
    45. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    46. S. P. Kothari & Susan Shu & Peter D. Wysocki, 2009. "Do Managers Withhold Bad News?," Journal of Accounting Research, Wiley Blackwell, vol. 47(1), pages 241-276, March.
    47. Bronars, Stephen G & Deere, Donald R, 1993. "Unionization, Incomplete Contracting, and Capital Investment," The Journal of Business, University of Chicago Press, vol. 66(1), pages 117-132, January.
    48. Mary E. Barth & Ron Kasznik & Maureen F. McNichols, 2001. "Analyst Coverage and Intangible Assets," Journal of Accounting Research, Wiley Blackwell, vol. 39(1), pages 1-34, June.
    49. Lee, Gemma & Masulis, Ronald W., 2009. "Seasoned equity offerings: Quality of accounting information and expected flotation costs," Journal of Financial Economics, Elsevier, vol. 92(3), pages 443-469, June.
    50. Chyz, James A. & Ching Leung, Winnie Siu & Zhen Li, Oliver & Meng Rui, Oliver, 2013. "Labor unions and tax aggressiveness," Journal of Financial Economics, Elsevier, vol. 108(3), pages 675-698.
    51. Baruch Lev, 2007. "Discussion of “Information Asymmetry and Cross†sectional Variation in Insider Trading†," Contemporary Accounting Research, John Wiley & Sons, vol. 24(1), pages 233-234, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chantziaras, Antonios & Dedoulis, Emmanouil & Leventis, Stergios, 2020. "The impact of labor unionization on monitoring costs," European Management Journal, Elsevier, vol. 38(2), pages 288-307.
    2. Ormazabal, Gaizka, 2018. "The Role of Stakeholders in Corporate Governance: A View from Accounting Research," CEPR Discussion Papers 12775, C.E.P.R. Discussion Papers.
    3. Yi Si & Chongwu Xia, 2023. "The Effect of Human Capital on Stock Price Crash Risk," Journal of Business Ethics, Springer, vol. 187(3), pages 589-609, October.
    4. Chen, I-Ju & Chen, Yan-Shing & Chen, Sheng-Syan, 2018. "The strategic choice of payment method in corporate acquisitions: The role of collective bargaining against unionized workers," Journal of Banking & Finance, Elsevier, vol. 88(C), pages 408-422.
    5. Kim, Jeong-Bon & Zhang, Eliza Xia & Zhong, Kai, 2021. "Does unionization affect the manager–shareholder conflict? Evidence from firm-specific stock price crash risk," Journal of Corporate Finance, Elsevier, vol. 69(C).
    6. Chino, Atsushi, 2016. "Do labor unions affect firm payout policy?: Operating leverage and rent extraction effects," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 156-178.
    7. Keishi Fujiyama & Makoto Kuroki, 2017. "Strategic Management Forecasts and Accounting Choices: A Case of Employee Downsizing in Japan," Discussion Paper Series DP2017-06, Research Institute for Economics & Business Administration, Kobe University, revised Sep 2017.
    8. Hamdi Ben-Nasr & Abdullah Alshwer, 2015. "How Informed Stock Trading Can Affect Labor Investment Efficiency," Proceedings of Business and Management Conferences 2304077, International Institute of Social and Economic Sciences.
    9. Ertugrul, Mine & Marciukaityte, Dalia, 2021. "Labor unions and corporate social responsibility," Journal of Banking & Finance, Elsevier, vol. 125(C).
    10. In‐Mu Haw & Bingbing Hu & Donghui Wu & Xu Zhang, 2018. "Having a Finger in the Pie: Labor Power and Corporate Payout Policy," Financial Management, Financial Management Association International, vol. 47(4), pages 993-1027, December.
    11. Teresa Chu & In-Mu Haw & Simon S. M. Ho & Xu Zhang, 2020. "Labor protection, ownership concentration, and cost of equity capital: international evidence," Review of Quantitative Finance and Accounting, Springer, vol. 54(4), pages 1351-1387, May.
    12. Özgür Arslan‐Ayaydin & James Thewissen & Wouter Torsin, 2021. "Disclosure tone management and labor unions," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(1-2), pages 102-147, January.
    13. Richard Chung & Bryan Byung-Hee Lee & Woo-Jong Lee & Byungcherl Charlie Sohn, 2016. "Do Managers Withhold Good News from Labor Unions?," Management Science, INFORMS, vol. 62(1), pages 46-68, January.
    14. Chyz, James A. & Eulerich, Marc & Fligge, Benjamin & Romney, Miles A., 2023. "Codetermination and aggressive reporting: Audit committee employee representation, tax aggressiveness, and earnings management," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 51(C).
    15. Ju Ryum Chung & Eun Jung Cho & Ho-Young Lee & Myungsoo Son, 2017. "The impact of labour unions on external auditor selection and audit scope: evidence from the Korean market," Applied Economics, Taylor & Francis Journals, vol. 49(48), pages 4833-4850, October.
    16. Zhenxu Tong, 2015. "Labor Unions and Forms of Corporate Liquidity," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 42(7-8), pages 1007-1039, September.
    17. Brockman, Paul & Luo, Juan & Xu, Limin, 2020. "The impact of short-selling pressure on corporate employee relations," Journal of Corporate Finance, Elsevier, vol. 64(C).
    18. Chang, Kiyoung & Kim, Young Sang & Li, Ying & Park, Jong Chool, 2022. "Labor unions and real earnings management," Journal of Corporate Finance, Elsevier, vol. 75(C).
    19. Bryan, David B., 2017. "Organized labor, audit quality, and internal control," Advances in accounting, Elsevier, vol. 36(C), pages 11-26.
    20. Aobdia, Daniel & Cheng, Lin, 2018. "Unionization, product market competition, and strategic disclosure," Journal of Accounting and Economics, Elsevier, vol. 65(2), pages 331-357.

    More about this item

    Keywords

    Information asymmetry; Labor unions; Information disclosure; Endogeneity;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:quaeco:v:69:y:2018:i:c:p:174-187. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620167 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.