Creative Commons

I examine the impact of labor unionization on monitoring costs, voluntary disclosure, and corporate finance. To test my empirical inquiries, I use firm-level collective bargaining datasets (programmatically extracted from companies’ 10-K filings), including both unionized and non-unionized firms, an element that is absent in most prior research. My thesis consists of the following three empirical chapters. In the first, I examine the impact of labor unions on audit fees. My findings suggest that audit fees, become significantly higher at firms with organized labor. I show that unionized firms have more complex structures than nonunionized firms and that these structures increase both the risk and the magnitude of audit fees. I also show that monitoring agents consider political ideology supportive of labor unions, so the predominant political ideology of a region can further increase monitoring costs. I demonstrate that audit fees are significantly lower at firms with employee share ownership. I conclude that labor unionization increases the costs incurred by monitoring agents and that this burden is then further amplified or mitigated according to the structure of industrial relations. In the second, I analyze the impact of labor unionization on CSR reporting. My findings suggest that firms are more likely to adopt CSR reporting strategies as a response to labor unionization. I show that the effect of union influence on CSR reporting is prominent in areas with incremental union power, attributable to political ideology, the legal environment, and corporate spatial clustering. Overall, my findings add new evidence to a growing body of literature regarding the influential role of dominant stakeholders on managerial decisions. In the third and final chapter, I investigate the impact of labor unionization on IPO underpricing. My analyses indicate that unionized IPOs are associated with less underpricing, with downward offer price revisions, and with lower aftermarket volatility. I demonstrate that information asymmetry and salient agency costs discourage the participation of investors in an IPO and also compromise the demand investors have for an IPO. I use Right to Work laws as an exogenous variation in the strength of labor unions in order to show that those unions which are located in regions with incremental union power have a considerable effect on first day returns.