The battle between activist hedge funds and labor unions

Abstract

Activist hedge funds are more likely to target unionized firms. When they do, the short-term stock performance is higher, especially when the hedge funds’ targeting strategy is hostile. Employees and labor organizations at target firms tend to oppose activist hedge funds. Firms are more likely to unionize after being targeted by hedge funds, and employee satisfaction deteriorates at target firms. Moreover, unionized firms are more likely to strike after being targeted, and those strikes in opposition to hedge fund intervention are more severe and more detrimental to the firms. This paper further explores potential costs and harmful consequences to the firm value due to the tension between activist hedge funds and labor unions. After being targeted, unionized firms tend to have lower profitability, weakened corporate governance, exposure to a higher degree of competitive and product market threats, and a higher crash risk in stock prices.