The Impact of Employee Activism on the Capital Markets

UoM administered thesis: Phd

  • Authors:
  • Xianglong Chen


In this thesis, I present three self-contained essays studying the impact of employee activism, an emerging phenomenon, on the capital markets. My first two essays examine whether interest alignment and resource competition influence union strike risk, while in my third essay, I evaluate whether financial analysts enrich the information set for investors in anticipation of such employee risk. Together, these studies shed light on the significant impact of employee activism on corporate decisions and the information environment in the capital markets. In the first essay, I examine the impact of employee stock options (ESO) on union strike risk. Consistent with ESO realigning the interests of organised labour with those of their employers, I find that firms offering higher levels of equity incentives to their employees are exposed to significantly lower strike risk following unionisation. I also provide evidence that managers strategically grant more ESO incentives in response to unionisation, as a way to proactively improve the interest alignment between employees and firms. My findings have important implications for accounting standard setters and policymakers. Despite the benefit of ESO, the current accounting treatment of equity-based compensation inhibits the expansion of employee ownership. Thus, my study calls for more policy support to promote employee ownership in the heavily unionised industrial firms in the U.S. as well as other jurisdictions, such as Europe, where union activism is also prevalent. The second essay explores the effect of corporate social responsibility (CSR) spending on union strike risk. I find that CSR expenditure in non-employee dimensions, such as community and environment, exacerbates strike risk following unionisation, whereas employee-related CSR spending mitigates union strike risk. These contrasting effects suggest that a high level of non-employee CSR spending intensifies the resource competition between employees and other stakeholders. My findings suggest that managers should regularly review their relationships with different stakeholders, and highlight the importance of a balanced approach to stakeholder management when making decisions regarding CSR investments. Overall, this study sheds light on the inter-stakeholder relationship through the lens of the employees. In the third and final essay, I investigate the interaction between organised labour and sell-side analysts, key financial information intermediaries in the capital markets. Using a large U.S. sample, I document that the labour unionisation rate is associated with lower forecast accuracy and higher forecast dispersion in analysts’ earnings forecasts, implying that financial analysts predominantly serve a “complementary role” rather than a “substitutive role” when firms are subject to heightened uncertainty in human capital. Crucially, further analysis indicates that the availability of labour cost information significantly mitigates unions’ negative impact on analysts’ forecast quality, confirming analysts’ reliance on publicly disclosed information. Overall, this paper shows that the influence of organised labour extends beyond the corporate boundary to a group of sophisticated market participants, and highlights the value relevance of disclosure specifically related to human capital, in terms of improving the information environment of the capital markets.


Original languageEnglish
Awarding Institution
Award date1 Aug 2020