Do Labor Unions Affect Stock Price Crash Risk?

Abstract

This paper examines the influence of labor unions on stock price crash risk. Using a large sample of U.S. firms over the period 1984-2013, we provide the evidence that labor unions increase the likelihood to experience future stock price crashes. This finding is consistent with the argument that firms facing strong labor unions tend to report lower accounting information, in order to preserve bargaining power when negotiating contracts with labor unions. Further, we find that the adverse effects of labor unions on stock price crash risk are less pronounced for firms with strong external monitoring mechanisms, such as high institutional ownership and high analyst coverage.