How Labor Unions Affect Firm Value: Evidence from Political Contributions in the United States Keegan Woods and Kelvin Jui Keng Tan* The University of Queensland, Business School August, 2018 ABSTRACT This paper investigates the relation between political engagement by special interest groups (corporations and labor unions) and corporate stock returns in the United States. Exploiting two opposing interventions affecting the legality of soft-money political contribu- tions from unions and corporations, we find that abnormal returns around the ban (repeal) of soft-money contributions are positively (negatively) related to unionization. These results suggest that political spending by labor unions has a meaningfully deleterious effect on the value of unionized corporations. To counter-engage labor unions in the political arena, we find that unionized firms provide more support (i.e., hard-money contribution) for Republi- cans. JEL classification: J51, G32, K16, D72. *Keegan Woods is at the University of Queensland, email:
[email protected]. Kelvin Tan is at the University of Queensland, email:
[email protected]. We thank seminar and conference participants at the Financial Management - Asia/Pacific Conference, American Economic Association Conference (Scheduled 2019), ShenZhen University for their helpful comments and suggestions. Each election cycle, labor unions directly contribute millions of dollars in hard-money dona- tions to political candidates running for office in the United States. Special interest groups such as corporations and labor unions are able to provide politicians with financial support through two different channels. The first of these channels is known as direct, \hard money" contributions. In short, through this channel, special interest groups are able to establish a Political Action Committee (PAC) which can then provide up to $5,000 to each and every candidate up for federal election.