The Bright Side of Unionization: The Case of Stock Price Crash Risk

Jeong-Bon Kim; Eliza Xia Zhang; Kai Zhong

The Bright Side of Unionization: The Case of Stock Price Crash Risk

Jeong-Bon Kim
, Eliza Xia Zhang
, Kai Zhong

Department of Accountancy

Research output: Conference Papers › RGC 32 - Refereed conference paper (without host publication) › peer-review

Abstract

This study examines whether and how labor unionization influences stock price crash risk. Using a regression discontinuity design that employs union elections as an exogenous shock yielding local variation in unionization, we find that unionization leads to a significant decline in stock price crash risk. We further explore the underlying mechanisms through which unionization affects crash risk and find that labor unions constrain managerial resource diversion and overinvestment, demand less risk-taking, and facilitate transparent information flow, which in turn reduces crash risk. Overall, our results suggest that unions play an important governance role. Our study sheds new light on a formerly under-researched beneficial impact of unionization and the role that organized labor plays in influencing extreme downside risk in the equity market.

Original language	English
Publication status	Published - 12 Aug 2019
Event	American Accounting Association Annual Meeting - San Francisco, United States Duration: 10 Aug 2019 → 14 Aug 2019 https://aaahq.org/Meetings/2020/Financial-Accounting-and-Reporting-Section/Program

Conference

Conference	American Accounting Association Annual Meeting
Place	United States
City	San Francisco
Period	10/08/19 → 14/08/19
Internet address	https://aaahq.org/Meetings/2020/Financial-Accounting-and-Reporting-Section/Program

Bibliographical note

Since this conference is yet to commence, the information for this record is subject to revision.

Research Keywords

unionization
stock price crash risk
governance

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title = "The Bright Side of Unionization: The Case of Stock Price Crash Risk",

abstract = "This study examines whether and how labor unionization influences stock price crash risk. Using a regression discontinuity design that employs union elections as an exogenous shock yielding local variation in unionization, we find that unionization leads to a significant decline in stock price crash risk. We further explore the underlying mechanisms through which unionization affects crash risk and find that labor unions constrain managerial resource diversion and overinvestment, demand less risk-taking, and facilitate transparent information flow, which in turn reduces crash risk. Overall, our results suggest that unions play an important governance role. Our study sheds new light on a formerly under-researched beneficial impact of unionization and the role that organized labor plays in influencing extreme downside risk in the equity market. ",

keywords = "unionization, stock price crash risk, governance",

author = "Jeong-Bon Kim and Zhang, \{Eliza Xia\} and Kai Zhong",

note = "Since this conference is yet to commence, the information for this record is subject to revision.; American Accounting Association Annual Meeting ; Conference date: 10-08-2019 Through 14-08-2019",

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AU - Zhang, Eliza Xia

AU - Zhong, Kai

N1 - Since this conference is yet to commence, the information for this record is subject to revision.

PY - 2019/8/12

Y1 - 2019/8/12

N2 - This study examines whether and how labor unionization influences stock price crash risk. Using a regression discontinuity design that employs union elections as an exogenous shock yielding local variation in unionization, we find that unionization leads to a significant decline in stock price crash risk. We further explore the underlying mechanisms through which unionization affects crash risk and find that labor unions constrain managerial resource diversion and overinvestment, demand less risk-taking, and facilitate transparent information flow, which in turn reduces crash risk. Overall, our results suggest that unions play an important governance role. Our study sheds new light on a formerly under-researched beneficial impact of unionization and the role that organized labor plays in influencing extreme downside risk in the equity market.

AB - This study examines whether and how labor unionization influences stock price crash risk. Using a regression discontinuity design that employs union elections as an exogenous shock yielding local variation in unionization, we find that unionization leads to a significant decline in stock price crash risk. We further explore the underlying mechanisms through which unionization affects crash risk and find that labor unions constrain managerial resource diversion and overinvestment, demand less risk-taking, and facilitate transparent information flow, which in turn reduces crash risk. Overall, our results suggest that unions play an important governance role. Our study sheds new light on a formerly under-researched beneficial impact of unionization and the role that organized labor plays in influencing extreme downside risk in the equity market.

KW - unionization

KW - stock price crash risk

KW - governance

M3 - RGC 32 - Refereed conference paper (without host publication)

Y2 - 10 August 2019 through 14 August 2019

ER -

The Bright Side of Unionization: The Case of Stock Price Crash Risk

Abstract

Conference

Bibliographical note

Research Keywords

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