Organized Labor and Information Asymmetry in the Financial Markets
Abstract
Prior results from the labor relations literature suggest that revealing information weakens management's position in collective bargaining. Thus, when facing organized labor, management has an incentive to preserve the information asymmetry with outsiders. This study uses a sample from a large cross-section of the economy over several years to test this relation. Results are consistent with this prediction. Strong organized labor is associated with higher bid-ask spreads, higher probability of informed trading, lower trading volume and lower analyst coverage. These relations hold after controlling for numerous factors such as growth opportunities or risk.