Capital Structure as a Strategic Variable: Evidence from Collective Bargaining, Journal of Finance
I analyze the strategic use of debt financing to improve a firm's bargaining position with an important supplier organized labor. Because maintaining high levels of corporate liquidity can encourage workers to raise their wage demands, a firm with external finance constraints has an incentive to use the cash flow demands of debt service to improve its bargaining position with workers. Using both firm-level collective bargaining coverage and state changes in labor laws to identify changes in union bargaining power, I show that strategic incentives from union bargaining appear to have a substantial impact on corporate financing decisions.
Matsa, A. David. 2010. Capital Structure as a Strategic Variable: Evidence from Collective Bargaining. Journal of Finance. 65(3): 1197-1232.