The Effect of Wage Bargains on the Stock Market Value of the Firm

John Maron Abowd

226 citations0/0 files storedAmerican Economic Review

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Labor Movements and Unions Financial Markets and Investment Strategies Corporate Finance and Governance

Abstract

The author estimates the change in the value of common stock resulting from an unexpected change in collectively bargained labor costs. Using bargaining unit wage data and NYSE stock returns, he estimates a dollar for dollar trade-off between these variables. This result is consistent with stock valuations based on present value maximizing managerial decisions; that is, the results are consistent with Hotelling's lemma. The author also finds support for the hypothesis that collective bargains maximize the sum of shareholder and union member wealth; that is, the results are consistent with strong efficiency in the contracting environment. Copyright 1989 by American Economic Association.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1978Vertical Integration, Appropriable Rents, and the Competitive Contracting Process 1980Measuring security price performance 1984What do unions do 1951Wage Determination under Trade Unions.

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