Labour unions and global bank loan market

ABSTRACT

This article attempts to collect a data set of labour unions in global 500 biggest banks and investigate whether labour unions of banks influence the designing of bank loan contracts. We use global syndicate loan market to examine this issue. For simplicity, banks with and without labour unions are referred to as ‘unionized banks’ and ‘nonunionized banks’, respectively. We find that unionized banks tend to loosen their lending standard in the bank loan contract: unionized banks are more likely to charge lower loan spread and favourable nonprice terms compared with nonunionized banks. Hence, our results support that unionized banks tend to lend more loans to reduce the negative effect of labour unions.

KEYWORDS:

• Labour union
• global syndicate loan market
• bank loan contract
• loan spread

JEL CLASSIFICATION:

• G21
• G24
• G32
• G33

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ For example, during the recent financial crisis, the borrowers of a liquidity-constrained bank may not be able to easily switch to other less constrained ones. Thus, although some banks may have enough capital to make loans, they are unwilling to extend credit to firms with which they have no prior relationship.

² They also show that the result is particularly strong for smaller and more liquidity-constrained banks, but the bank–depositor relationships can help mitigate these supply side effects.

³ $Z$ includes seven borrower characteristics: Asset, Market-to-book, Leverage, Profitability, Tangibility, Z-score and Cash Flow Volatility; six loan characteristics: Maturity, Loan Size, Collateral, Performance, FinCov, GenCov; two macroeconomics factors: GDP_G and Inflation; lender characteristics: L_GOB (Shen and Lin 2012); and the purpose and type of loan. In all equations, we report the t-values based on SEs adjusted for heteroscedasticity (White 1980). To save space, we do not report the coefficients of loan purpose, loan type, industry and year dummies.

Additional information

Funding

This work was supported by the Taiwan Ministry of Science and Technology.