Voice of the Voiceless: How and When Does Organized Labor Deter Managerial Opportunism

This study investigates how and when organized labor may prevent opportunistic behavior by management. We find that companies with organized labor experience significant reductions in abnormal dollar profits of insider trades. Supplementary analysis reveals that the impact of organized labor also extends to other forms of managerial misconduct, such as illegal insider trading, corporate accounting fraud, and stock option backdating. The restraining effects of labor unions on insider trading profits are particularly evident in insider sales and in companies with poor employee relations. Furthermore, a decline in opportunistic managerial actions correlates with improved firm productivity and performance. These findings highlight the potential aspect of employee governance, which aligns employee interests with the benefit of shareholders.