Labor power, investor protection, and price synchronicity

ABSTRACT

In this study, we examine the impact of labor union power on stock price synchronicity. We proxy labor union power by the collective relation law index and measure stock price synchronicity by the level of co-movement between a firm’s stock price and market index. Using a sample of 37 countries between 1995 and 2016, we find that labor union power is positively associated with stock price synchronicity, indicating that firms in countries where labor union power is relatively stronger tend to disclose less firm-specific information. Our evidence also shows that this phenomenon is more pronounced in countries where investors are better protected, and is less pronounced or even reversed in countries where investors are less protected.

KEYWORDS:

• Labor union power
• stock price synchronicity
• investor protection

Acknowledgments

We thank the anonymous reviewer, Mark DeFond, Stephen S. W. Fung, Pearl Tan, Joanna Wu, and participants at WAFS 2019 conference and AFAANZ 2017 Conference for their insightful and constructive comments to improve the manuscript.

Disclosure statement

No potential conflict of interest was reported by the authors.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

1. For example, our UNION values for Canada, Korea, UK, and US are 0.20, 0.55, 0.19, and 0.26, respectively (see Table 2). The corresponding values for the labor union density are 25.9, 12.4, 23.4, and 10.1 (https://stats.oecd.org/Index.aspx?DataSetCode=TUD).

2. The daily total return for non-U.S. firms is from Compustat Global, which is obtained by adjusting daily closing price with daily adjustment factor and daily total return factor, whereas the daily total return for the U.S. firms is from CRSP. It includes dividends as well as price changes. It is a total return index that measures the performance of a group of components by assuming that all cash distributions are reinvested. It is different from a price index. A price index only considers price movements (capital gains or losses) of the securities that make up the index, while a total return index includes dividends, interest, rights offerings and other distributions realized over a given period of time. Looking at an index’s total return is usually considered a more accurate measure of performance.