Abstract
High leverage can be used to improve a firm's bargaining position with unions. I find that this use of leverage in the United States is concentrated in states without right-to-work (RTW) laws. The use of high leverage by unionized firms in these states is associated with high market-to-book ratios and is more likely when shareholder and manager interests are aligned through compensation contracts. I confirm these findings by examining the adoption of RTW laws in Oklahoma, as well as presidential and congressional elections. Moreover, I confirm the importance of RTW laws using cash balances instead of leverage.
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