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Does the Political Power of Nonfinancial Stakeholders Affect Firm Values? Evidence from Labor Unions

Published online by Cambridge University Press:  29 April 2018

Jared Stanfield  and
Robert Tumarkin
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Abstract

Whereas corporate political connections are known to enhance equity values, we demonstrate that union political activity can have the opposite effect. We examine the consequences of a recent Australian state law that restricts union political activity but does not change collective bargaining rights. In the wake of this law, the equity values of affected unionized firms significantly increase, and consistent with this market reaction, these firms are able to bargain for more favorable labor contracts than their unionized peers in other states. The evidence strongly suggests that unions use political activism to extract rents from shareholders and benefit their members.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 53 , Issue 3 , June 2018 , pp. 1101 - 1133
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

We thank Paul Malatesta (the editor) and an anonymous referee for many useful suggestions. We are grateful for helpful comments from Renée Adams, Patrick Bolton, Diane Del Guercio, Ran Duchin, Mara Faccio, Joseph Fan, Neal Galpin, Jarrad Harford, Barry Hirsch, Richard Holden, Kate Holland, Sandy Klasa, Ron Masulis, Vikas Mehrotra, Lyndon Moore, Ville Rantala, Jake Rosenfeld, Rik Sen, Jason Zein, and seminar participants at the 2016 American Economics Association Annual Meeting, the 2016 Financial Management Association Annual Meeting, the 2015 Conference on Empirical Legal Studies, the 2014 National Bureau of Economic Research Law and Economics Program Meeting, the 2013 Banff Frontiers in Finance Conference, the 2013 Australian National University Research School of Finance, the Actuarial Studies & Statistics Summer Research Camp, the 2012 Financial Research Network Annual Conference, the University of Melbourne, the University of Queensland, and La Trobe University. We thank Nithilla Jeyalingam and Ian Liu for excellent research assistance.

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