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Bankruptcy and the Cost of Organized Labor: Evidence from Union Elections

Murillo Campello1; Janet Gao2; Jiaping Qiu3; Yue Zhang4

1 Cornell University and NBER · 2 Indiana University · 3 McMaster University · 4 Université Catholique de Louvain

Review of Financial Studies 2018 open access

Unionized workers are entitled to special treatment in bankruptcy court that can be detrimental to other corporate stakeholders, with unsecured creditors standing to lose the most. Using data on union elections, we employ a regression discontinuity design to identify the effect of worker unionization on bondholders in bankruptcy states. Closely won union elections lead to significant bond value losses, especially when firms approach bankruptcy, have underfunded pension plans, and operate in non-RTW law states. Unionization is associated with longer, more convoluted, and costlier bankruptcy court proceedings. Unions depress bondholders’ recovery values as they are assigned seats on creditors’ committees. Received September 19, 2016; editorial decision September 19, 2017 by Editor David Denis. Authors have furnished an Internet Appendix, which is available on the Oxford University PressWeb site next to the link to the final published paper online.

DOI
10.1093/rfs/hhx117
Volume
31 (3)
Pages
980-1013
Language
en
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