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Capital Structure as a Strategic Variable: Evidence from Collective Bargaining (2006)
| Citations: | 40 - 6 self |
BibTeX
@MISC{Matsa06capitalstructure,
author = {David A. Matsa},
title = { Capital Structure as a Strategic Variable: Evidence from Collective Bargaining},
year = {2006}
}
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Abstract
Market power in the hands of a supplier — such as a labor union — affects a firm’s optimal debt policy. If a firm maintains a high level of liquidity, workers may be encouraged to raise wage demands. In the presence of external finance constraints, a firm has an incentive to use the cash flow demands of debt service payments to improve its bargaining position. Using both cross-sectional estimates of firm-level collective bargaining coverage as well as state changes in labor law to identify changes in union bargaining power, I show that firms indeed appear to use financial leverage strategically to influence collective bargaining negotiations. These estimates suggest that strategic incentives from union bargaining have a substantial impact on financing decisions.
Keyphrases
capital structure collective bargaining strategic variable state change firm optimal debt policy union bargaining power external finance constraint debt service payment collective bargaining negotiation union bargaining labor law market power labor union substantial impact firm-level collective bargaining coverage high level cross-sectional estimate strategic incentive bargaining position cash flow demand financing decision financial leverage wage demand
