Why Strikes Occur: Evidence from the Capital Markets

Abstract

New and existing empirical evidence regarding the stock market reaction to strikes is used to test the validity of three strike theories. A review of the existing capital market evidence reveals the need for information regarding the intraindustry announcement effects of strikes against manufacturing firms. This need is filled by applying event-study methodology, in a manner consistent with earlier studies, to a sample of strikes during the period 1982-1999. This new evidence, combined with that of previous studies, consistently supports the validity of Hick's theory that strikes are the result of bargaining errors, misperceptions of bargaining goals, or discrepancies between the expectations of union leaders and the rank and file.A CONSIDERABLE EFFORT HAS BEEN GIVEN TO EMPIRICAL STUDIES OF THE DETERMINANTS of labor disputes. Unfortunately, even the most careful econometric analyses have difficulty in discriminating between alternative hypotheses regarding the causes of strikes. This is so because the variables available in most data sets can serve only as imperfect proxies for the variables hypothesized to influence the probability of strikes, with the result that estimated relationships often may be interpreted in ways that are consistent with more than one theoretical framework. Studies of the stock market response to labor disputes provide more promising 80 The authors' affiliations are, respectively, Kutztown University of Pennsylvania and Lehigh University.

The Stock Market’s Reaction to Unanticipated Catastrophic Event

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How Do Shareholders Respond to Downsizing? A Meta-Analysis

“…The cost of such disputes is often high for both the firm and its shareholders. Becker and Olson (1986), for example, have estimated that a strike involving over 1,000 workers may cost the company an average of 80 million dollars (see also Ruback and Zimmerman, 1984;Kramer and Vasconcellos, 1996;Kramer and Hyclak, 2002).…”

A contingency model of union commitment and participation: Meta‐analysis of the antecedents of militant and nonmilitant activities

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