Labor Rights, Venture Capital, and Firm Performance

Abstract

We investigate the role of labor unions in the performance of venture capital (VC)‐backed firms. Using a large sample of initial public offering firms from 1983 to 2013, we find that VC‐backed firms in highly unionized industries have lower Tobin's Q and are less likely to survive. This effect is robust to endogeneity concerns and to controlling for industry and firm characteristics. The findings suggest that strong labor rights impede innovative firms’ performance and survival, thereby adversely affecting innovation, economic growth, and employment.

Corporate Governance, Employment, and Financial Performance of Japanese Firms: A Cross-Country Analysis

“…Recent studies also reveal that differences in employment protection also affect corporate performance and corporate behavior (Botero et al, 2004;Caballero et al, 2013;Simintzi et al, 2014;Xing et al, 2017). For example, Caballero et al (2013) use data from 60 countries to analyze the relationship between the strength of employment protection regulations and the speed of employment adjustment and productivity in firms in each country.…”

The impact of labor unionization on audit fees, CSR reporting and IPO underpricing

“…Although the research emphasizes the contractual relations amongst a variety of actors in the IPO process, that indispensable group of the employees has been left out of the picture. Contractual relations with labor are central to corporate matters (Jensen and Meckling, 1976), and labor relations become even more complex when employees organize (Chyz, et al, 2013;Xing, et al, 2017) because labor unions play agents to members when they use tactics such as collective bargaining, industrial action, and activism in order to advance employee claims for better wages, better hours, and better working conditions (Agrawal, 2012;Chen, et al, 2011b;Chyz, et al, 2013;Faleye, et al, 2006).…”

“…As a robustness exercise, I repeat my main analyses and extract firm-level unionization from a firm's registration statement S-1 or correspondingly amended S-1/A, as Xing, et al (2017).…”

“…Robust academic evidence correlates successful union organization campaigns with a reduction in equity values (e.g., Lee and Mas, 2012). Xing, et al (2017) demonstrate that unionized venture capital backed IPOs are less profitable and less likely to survive.…”