Abstract
We investigate the use of financial resilience as a strategic tool in labor negotiations. In a dynamic model of employer-employee negotiations, low leverage and long-term maturity improve a firm's ability to withstand strikes. If employees suffer more from negotiations, this improved resilience strengthens the employer's bargaining position. Using data on union elections and policy changes, we find that firms increase (decrease) debt maturity in response to higher (lower) employees' bargaining power while keeping leverage unchanged. In contrast to previous studies, our findings indicate that firms respond to more powerful employees by increasing their financial resiliency to negotiations and strikes.
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