IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v63y2017i7p2251-2271.html
   My bibliography  Save this article

Do Unions Affect Innovation?

Author

Listed:
  • Daniel Bradley

    (Department of Finance, University of South Florida, Tampa, Florida 33620)

  • Incheol Kim

    (Department of Finance, Fordham University, New York, New York 10023)

  • Xuan Tian

    (Finance Department, Indiana University, Bloomington, Indiana 47405; and PBC School of Finance, Tsinghua University, 100083 Beijing, China)

Abstract

We examine the effect of unionization on firm innovation, using a regression discontinuity design that relies on “locally” exogenous variation generated by elections that pass or fail by a small margin of votes. Passing a union election results in an 8.7% (12.5%) decline in patent quantity (quality) three years after the election. A reduction in R&D expenditures, reduced productivity of inventors, and departures of innovative inventors appear to be plausible underlying mechanisms through which unionization impedes firm innovation. In response to unionization, firms move their innovation activities away from states where union elections win. Our paper provides new insights into the real effects of unionization.

Suggested Citation

  • Daniel Bradley & Incheol Kim & Xuan Tian, 2017. "Do Unions Affect Innovation?," Management Science, INFORMS, vol. 63(7), pages 2251-2271, July.
    • Handle: RePEc:inm:ormnsc:v:63:y:2017:i:7:p:2251-2271
    DOI: 10.1287/mnsc.2015.2414
    as

    Download full text from publisher

    File URL: https://doi.org/10.1287/mnsc.2015.2414
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.2015.2414?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
    ---><---

    References listed on IDEAS

    as
    1. Gustavo Manso, 2011. "Motivating Innovation," Journal of Finance, American Finance Association, vol. 66(5), pages 1823-1860, October.
    2. Holmstrom, Bengt, 1989. "Agency costs and innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 12(3), pages 305-327, December.
    3. François Derrien & Ambrus Kecskés, 2013. "The Real Effects of Financial Shocks: Evidence from Exogenous Changes in Analyst Coverage," Post-Print hal-00852356, HAL.
    4. Nanda, Ramana & Rhodes-Kropf, Matthew, 2013. "Investment cycles and startup innovation," Journal of Financial Economics, Elsevier, vol. 110(2), pages 403-418.
    5. Vicente Cuñat & Mireia Gine & Maria Guadalupe, 2012. "The Vote Is Cast: The Effect of Corporate Governance on Shareholder Value," Journal of Finance, American Finance Association, vol. 67(5), pages 1943-1977, October.
    6. Thomas J. Chemmanur & Elena Loutskina & Xuan Tian, 2014. "Corporate Venture Capital, Value Creation, and Innovation," The Review of Financial Studies, Society for Financial Studies, vol. 27(8), pages 2434-2473.
    7. Philippe Aghion & John Van Reenen & Luigi Zingales, 2013. "Innovation and Institutional Ownership," American Economic Review, American Economic Association, vol. 103(1), pages 277-304, February.
    8. Xuan Tian & Tracy Yue Wang, 2014. "Tolerance for Failure and Corporate Innovation," The Review of Financial Studies, Society for Financial Studies, vol. 27(1), pages 211-255, January.
    9. Seru, Amit, 2014. "Firm boundaries matter: Evidence from conglomerates and R&D activity," Journal of Financial Economics, Elsevier, vol. 111(2), pages 381-405.
    10. Nicholas Bloom & Mirko Draca & John Van Reenen, 2016. "Trade Induced Technical Change? The Impact of Chinese Imports on Innovation, IT and Productivity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(1), pages 87-117.
    11. Viral V. Acharya & Ramin P. Baghai & Krishnamurthy V. Subramanian, 2014. "Wrongful Discharge Laws and Innovation," The Review of Financial Studies, Society for Financial Studies, vol. 27(1), pages 301-346, January.
    12. Lauren Cohen & Karl Diether & Christopher Malloy, 2013. "Misvaluing Innovation," The Review of Financial Studies, Society for Financial Studies, vol. 26(3), pages 635-666.
    13. Hsu, Po-Hsuan & Tian, Xuan & Xu, Yan, 2014. "Financial development and innovation: Cross-country evidence," Journal of Financial Economics, Elsevier, vol. 112(1), pages 116-135.
    14. Imbens, Guido W. & Lemieux, Thomas, 2008. "Regression discontinuity designs: A guide to practice," Journal of Econometrics, Elsevier, vol. 142(2), pages 615-635, February.
    15. John DiNardo & David S. Lee, 2004. "Economic Impacts of New Unionization on Private Sector Employers: 1984–2001," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(4), pages 1383-1441.
    16. James M. Malcomson, 1997. "Contracts, Hold-Up, and Labor Markets," Journal of Economic Literature, American Economic Association, vol. 35(4), pages 1916-1957, December.
    17. Connolly, Robert A & Hirsch, Barry T & Hirschey, Mark, 1986. "Union Rent Seeking, Intangible Capital, and Market Value of the Firm," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 567-577, November.
    18. Bronwyn H. Hall & Adam B. Jaffe & Manuel Trajtenberg, 2001. "The NBER Patent Citation Data File: Lessons, Insights and Methodological Tools," NBER Working Papers 8498, National Bureau of Economic Research, Inc.
    19. Zoltan J. Acs & David B. Audretsch, 2008. "Innovation in Large and Small Firms: An Empirical Analysis," Chapters, in: Entrepreneurship, Growth and Public Policy, chapter 1, pages 3-15, Edward Elgar Publishing.
    20. Florian Ederer & Gustavo Manso, 2013. "Is Pay for Performance Detrimental to Innovation?," Management Science, INFORMS, vol. 59(7), pages 1496-1513, July.
    21. 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.
    22. Grout, Paul A, 1984. "Investment and Wages in the Absence of Binding Contracts: A Nash Bargining Approach," Econometrica, Econometric Society, vol. 52(2), pages 449-460, March.
    23. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(2), pages 701-728.
    24. 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.
    25. Hahn, Jinyong & Todd, Petra & Van der Klaauw, Wilbert, 2001. "Identification and Estimation of Treatment Effects with a Regression-Discontinuity Design," Econometrica, Econometric Society, vol. 69(1), pages 201-209, January.
    26. Philippe Aghion & Jean Tirole, 1994. "The Management of Innovation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 1185-1209.
    27. Guido Imbens & Karthik Kalyanaraman, 2012. "Optimal Bandwidth Choice for the Regression Discontinuity Estimator," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(3), pages 933-959.
    28. 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.
    29. Shai Bernstein, 2015. "Does Going Public Affect Innovation?," Journal of Finance, American Finance Association, vol. 70(4), pages 1365-1403, August.
    30. 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.
    31. Richard B. Freeman & James L. Medoff, 1979. "The Two Faces of Unionism," NBER Working Papers 0364, National Bureau of Economic Research, Inc.
    32. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 281-355, June.
    33. Cornaggia, Jess & Mao, Yifei & Tian, Xuan & Wolfe, Brian, 2015. "Does banking competition affect innovation?," Journal of Financial Economics, Elsevier, vol. 115(1), pages 189-209.
    34. David Hirshleifer & Angie Low & Siew Hong Teoh, 2012. "Are Overconfident CEOs Better Innovators?," Journal of Finance, American Finance Association, vol. 67(4), pages 1457-1498, August.
    35. Viral V. Acharya & Krishnamurthy V. Subramanian, 2009. "Bankruptcy Codes and Innovation," The Review of Financial Studies, Society for Financial Studies, vol. 22(12), pages 4949-4988, December.
    36. Tor‐Erik Bakke & Toni M. Whited, 2012. "Threshold Events and Identification: A Study of Cash Shortfalls," Journal of Finance, American Finance Association, vol. 67(3), pages 1083-1111, June.
    37. 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.
    38. 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.
    39. Li, Guan-Cheng & Lai, Ronald & D’Amour, Alexander & Doolin, David M. & Sun, Ye & Torvik, Vetle I. & Yu, Amy Z. & Fleming, Lee, 2014. "Disambiguation and co-authorship networks of the U.S. patent inventor database (1975–2010)," Research Policy, Elsevier, vol. 43(6), pages 941-955.
    40. John DiNardo & David S. Lee, 2004. "Economic Impacts of Unionization on Private Sector Employers: 1984-2001," NBER Working Papers 10598, National Bureau of Economic Research, Inc.
    41. He, Jie (Jack) & Tian, Xuan, 2013. "The dark side of analyst coverage: The case of innovation," Journal of Financial Economics, Elsevier, vol. 109(3), pages 856-878.
    42. Lee, David S., 2008. "Randomized experiments from non-random selection in U.S. House elections," Journal of Econometrics, Elsevier, vol. 142(2), pages 675-697, February.
    43. Vivian W. Fang & Xuan Tian & Sheri Tice, 2014. "Does Stock Liquidity Enhance or Impede Firm Innovation?," Journal of Finance, American Finance Association, vol. 69(5), pages 2085-2125, October.
    44. McCrary, Justin, 2008. "Manipulation of the running variable in the regression discontinuity design: A density test," Journal of Econometrics, Elsevier, vol. 142(2), pages 698-714, February.
    45. Stephen G. Bronars & Donald R. Deere, 1991. "The Threat of Unionization, the Use of Debt, and the Preservation of Shareholder Wealth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(1), pages 231-254.
    46. Daniel Ferreira & Gustavo Manso & André C. Silva, 2014. "Incentives to Innovate and the Decision to Go Public or Private," The Review of Financial Studies, Society for Financial Studies, vol. 27(1), pages 256-300, January.
    47. François Derrien & Ambrus Kecskés, 2013. "The Real Effects of Financial Shocks: Evidence from Exogenous Changes in Analyst Coverage," Journal of Finance, American Finance Association, vol. 68(4), pages 1407-1440, August.
    48. Ramana Nanda & Matthew Rhodes-Kropf, 2017. "Financing Risk and Innovation," Management Science, INFORMS, vol. 63(4), pages 901-918, April.
    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. Acharya, Viral & Xu, Zhaoxia, 2017. "Financial dependence and innovation: The case of public versus private firms," Journal of Financial Economics, Elsevier, vol. 124(2), pages 223-243.
    2. Ching-Hung Chang & Qingqing Wu, 2021. "Board Networks and Corporate Innovation," Management Science, INFORMS, vol. 67(6), pages 3618-3654, June.
    3. Moshirian, Fariborz & Tian, Xuan & Zhang, Bohui & Zhang, Wenrui, 2021. "Stock market liberalization and innovation," Journal of Financial Economics, Elsevier, vol. 139(3), pages 985-1014.
    4. Glaeser, Stephen, 2018. "The effects of proprietary information on corporate disclosure and transparency: Evidence from trade secrets," Journal of Accounting and Economics, Elsevier, vol. 66(1), pages 163-193.
    5. Hasan, Iftekhar & (Stan) Hoi, Chun-Keung & Wu, Qiang & Zhang, Hao, 2020. "Is social capital associated with corporate innovation? Evidence from publicly listed firms in the U.S," Journal of Corporate Finance, Elsevier, vol. 62(C).
    6. 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).
    7. Seong K. Byun & Jong-Min & Han Xia, 2021. "Incremental vs. Breakthrough Innovation: The Role of Technology Spillovers," Management Science, INFORMS, vol. 67(3), pages 1779-1802, March.
    8. Mukherjee, Abhiroop & Singh, Manpreet & Žaldokas, Alminas, 2017. "Do corporate taxes hinder innovation?," Journal of Financial Economics, Elsevier, vol. 124(1), pages 195-221.
    9. Yang, Huan, 2021. "Institutional dual holdings and risk-shifting: Evidence from corporate innovation," Journal of Corporate Finance, Elsevier, vol. 70(C).
    10. Lili Dai & Rui Shen & Bohui Zhang, 2021. "Does the media spotlight burn or spur innovation?," Review of Accounting Studies, Springer, vol. 26(1), pages 343-390, March.
    11. Lily Nguyen & Le Vu & Xiangkang Yin, 2021. "Share repurchases and firm innovation," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(S1), pages 1665-1695, April.
    12. Yongqiang Chu & Xuan Tian & Wenyu Wang, 2019. "Corporate Innovation Along the Supply Chain," Management Science, INFORMS, vol. 67(6), pages 2445-2466, June.
    13. Ramana Nanda & William R. Kerr, 2015. "Financing Innovation," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 445-462, December.
    14. Wang, Jimin & Ho, Choy Yeing (Chloe) & Shan, Yuan George, 2024. "Does cybersecurity risk stifle corporate innovation activities?," International Review of Financial Analysis, Elsevier, vol. 91(C).
    15. Fich, Eliezer M. & Nguyen, Tung & Petmezas, Dimitris, 2023. "The effects of terrorist attacks on inventor productivity and mobility," Research Policy, Elsevier, vol. 52(1).
    16. Magnus Schauf & Eline Schoonjans, 2022. "Better Safe than Sorry: Toxic Waste Management after Unionization," Working Papers 220, Bavarian Graduate Program in Economics (BGPE).
    17. Kong, Dongmin & Wang, Yanan & Zhang, Jian, 2020. "Efficiency wages as gift exchange: Evidence from corporate innovation in China," Journal of Corporate Finance, Elsevier, vol. 65(C).
    18. Chen, Jie & Leung, Woon Sau & Evans, Kevin P., 2016. "Are employee-friendly workplaces conducive to innovation?," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 61-79.
    19. Chen Lin & Sibo Liu & Gustavo Manso, 2021. "Shareholder Litigation and Corporate Innovation," Management Science, INFORMS, vol. 67(6), pages 3346-3367, June.
    20. Cornaggia, Jess & Mao, Yifei & Tian, Xuan & Wolfe, Brian, 2015. "Does banking competition affect innovation?," Journal of Financial Economics, Elsevier, vol. 115(1), pages 189-209.

    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:inm:ormnsc:v:63:y:2017:i:7:p:2251-2271. 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: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    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.