Abstract
Prior research shows that stock price responds favorably to managerial incentive schemes which lower costs and stimulate growth. This article analyzes the consequence for shareholders of introducing profit sharing in unionized firms. Positive abnormal returns were associated with the announcement of collective agreements incorporating risk-sharing components, especially when the firm was experiencing preexisting financial distress. The realized gains generally exceeded that which could be attributed to strike activity or negotiated wage reductions. However, there was no indication that profit sharing decreased the perceived risk of investing in the firm.
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