earticle

영어

In the presence of labor unions, management has incentives to lower earnings to prevent labor unions from extracting rents (“manipulation hypothesis”) or to boost earnings through overproduction to lower costs of unit production or reducing discretionary R&D expenditures to mitigate employees’ perception of unemployment risk and reduce cost to attract and retain employees (“forced cooperation hypothesis”). Strong union affects manager’s decision in a way that firms end up getting lower abnormal production costs and lower abnormal R&D expenditures. We test these two hypotheses through the lens of real activity management because of labor unions’ particular interest directly linked in real activities. Consistent with the forced cooperation hypothesis, we find that the power of labor unions is positively associated with real activity management, especially through the overproduction channel. The extent of upward real activity varies with union power with a magnitude that is both statistically and economically significant. The positive relation between union power and real activity is stronger when the cost of attracting and retaining employees is high, and when labor unions are valued for job security purpose. In addition, the result is consistent when states’ unemployment insurance benefits suffer negative shocks, when states adopt the “right-to-work” laws, and when firms switch from unionized to nonunionized.