The impact of labor unions on investment-cash flow sensitivity

摘要

This paper empirically examines how labor unions affect investment-cash flow sensitivity using samples from the US covering the period of 1984-2009. We find a significant positive union effect using a q model of investment. The capital expenditures of firms are 1.71 times more sensitive to internal cash flows when unionization rates increase one standard deviation from the mean. This effect holds when we control for other proxies of financial constraints. In addition, unionized firms are associated with lower cash-cash flow sensitivity, which suggests that the higher investment-cash flow sensitivity in unionized firms is primarily driven by the incentive of these firms to reduce liquidity and enhance bargaining power against the union. We also show that the above union effects become more pronounced during labor contract negotiation years.