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Debt as Threat: Evidence from Union-Sponsored Shareholder Proposals

This paper studies how leverage affects the interaction between firms and labor unions using data on shareholder proposals. We find a negative association between leverage and both the probability of being targeted by union-sponsored proposals and the number of shareholder proposals submitted by unions. Our results are consistent with the idea that capital structure affects labor unions’ behavior and suggest that debt deters unions from engaging in negotiation tactics. Additional tests indicate that this effect is largely concentrated in governance – related proposals, particularly proposals regarding executive compensation and board elections, and is more pronounced in firms in poor financial condition.