Organized Labor and Inventory Stockpiling
Hamm, Sophia J. W., Jung, Boochun, Lee, Woo-Jong, Yang, Daniel G.
The Accounting Review · 2022 · Volume 97 · Issue 2
Abstract
We document that managers stockpile excess inventory to mitigate the operational risk posed by labor unions and to maintain bargaining power in labor negotiations. Inventory levels are higher for union firms and are incrementally higher preceding the renegotiation of collective bargaining agreements with unions. Inventory stockpiling at union firms is more salient when capital market pressure for transparency or information spillover from peers constrains managers from using disclosure strategies. We further show that managers weigh the costs and benefits of inventory stockpiling, as holding excess inventory due to the presence of a union is negatively associated with future profitability, but provides the benefits of avoiding a stockout and mitigating negative outcomes from a strike. Our findings highlight the importance of a major stakeholder, i.e., labor, in managers' investment decision making. Data Availability:All data are available from the public/private sources cited in the text. JEL Classifications:G31; J52; J53.
Keywords
labor union, inventory, operational risk, capital market pressure, information spillover, collective bargaining agreement, strike
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