Organized Labor and Managerial Opportunism

This study examines whether organized labor plays a role in deterring managerial opportunistic behavior. Results suggest that firms with organized labor experience statistically significant declines in opportunistic insider trading and other managerial misbehavior, including illegal insider trading, corporate accounting fraud, and stock option backdating, consistent with the disciplinary effect of organized labor on managerial opportunism. We provide evidence that good employee-management working relationships and organized labor monitoring efforts are two economic mechanisms that explain the influence of organized labor. Finally, the deterrent effect of organized labor on managerial opportunism has real economic consequences. Mitigated opportunism is associated with better labor contract renegotiation outcomes and improved firm productivity and performance.