Chen, Huafeng (Jason), Kacperczyk, Marcin T. and Ortiz-Molina, Hernan, "Do Non-Financial Stakeholders Affect Agency Costs of Debt? Evidence from Unionized Workers" (March 2007).

Authors' abstract:

We study the impact of a powerful non-financial stakeholder - unionized workers - on the agency costs of debt. We find that firms in more unionized industries have statistically and economically significant lower costs of debt, and that this relation is stronger in firms in which shareholder-bondholder conflicts of interest are likely to be more severe. Our results cannot be explained by the correlation of unionization rates with various industry characteristics, corporate governance mechanisms, or other unobservable factors. We also show that firms in more unionized industries implement less risky investment policies, especially in situations in which shareholders' risk-taking incentives are likely to be high. Taken together, our results suggest that unions decrease the agency costs of debt because they curb shareholders' incentives to take actions that expropriate bondholders and other fixed claimants.

http://ssrn.com/abstract=972046

This citation taken from ECCE's 2007-2008 Top Studies on ESG