Do Nonfinancial Stakeholders Affect the Pricing of Risky Debt? Evidence from Unionized Workers

The authors study the impact of a powerful nonfinancial stakeholder--unionized workers--on the pricing of corporate debt. Firms in more unionized industries have lower bond yields. This relation is stronger in firms with weaker financial conditions and cannot be explained by the correlation of unionization with industry characteristics, governance mechanisms, or financial leverage. Firms in unionized industries implement less risky investment policies and are less likely targets of acquisitions. Unionization reduces yields by more when firms' takeover barriers are lower. Hence, unions are viewed favorably in the bond market because, through their influence on corporate affairs, they protect bondholders' wealth. Copyright 2011, Oxford University Press.