Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
The LMRDA. Another Labor Law that Benefitted Employers?
Steven E. Abraham
This paper examines the impact of the Labor Management Reporting and Disclosure Act
(LMRDA) with event study methodology, which examines the impact of the law's passage
on the shareholder returns to the firms likely to have been affected by the law. Three
different samples are used and shareholder returns are examined on critical dates
associated with the passage of the law to assess whether it benefited the firms in the
samples. It was expected that returns would have increased in response to the law’s
passage, since it imposed a number of restrictions on unions vis-a-vis management and
instituted many rules regulating unions’ internal affairs. The results ran contrary to
expectations, however. For two of the samples, the results were negative and significant,
thus indicating that the law benefitted unions and/or was detrimental to management.
This indicates that perhaps the law was not as beneficial to management as many have
concluded elsewhere. Alternatively, perhaps the provisions regulating unions’ internal
affairs might have been viewed by investors as an opportunity for unions to improve their
public image, and the market may have seen this as being beneficial for unions and
harmful to management.
JEL Codes: J08, J50 and K31
I. Introduction
It has been demonstrated empirically that the laws governing private-sector Labor
Relations in the United States make a difference. The National Labor Relations Act
(NLRA), the major law governing union-management relations in the United States is
comprised, for the most part, of three different laws passed at different times: the
Wagner Act (1935) the Taft-Hartley Act (1947) and the Labor-Management Reporting
and Disclosure Act (1959). Olson and Becker (1990) demonstrated that the Wagner Act
(1935) was detrimental to management and Abraham (1996) demonstrated that the
Taft-Hartley Act was beneficial to management. This work examines the impact of the
Labor-Management Reporting and Disclosure Act (“LMRDA”) and assesses whether it
benefitted management. As will be discussed below, this is what most would expect.
This question is worthy of investigation for two main reasons. First, since the LMRDA is
the third major piece of the NLRA, this is a logical extension of the two works just cited.
Secondly, while most would agree that the LMRDA was detrimental to unions, it is less
clear that it benefited management. As will be discussed, the law imposed a number of
restrictions on unions, but only one title of the law had provisions that dealt with unions
vis-à-vis management.
And while most of the provisions in this title would have
restricted unions, there are a few that actually benefited them. The paper proceeds as
follows. Section II discusses the events leading to the passage of the LMRDA as well
as some of the law's main provisions. Section III discusses the empirical approach
used to assessing the effects of the law and Section IV reports and discusses the
results.
___________________________________________________
Mr. Steven E Abraham,
steven.abraham@oswego.edu
School
of
Business,
SUNY
Oswego,
Oswego
NY
13126,
Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
2. The LMRDA
This section of the paper chronicles the passage of the LMRDA and discusses the
provisions of the law.
The History of the LMRDA
The events that occurred during the twelve years between the passage of the TaftHartley Act and the LMRDA have been chronicleded in depth elsewhere and readers
wishing a more thorough discussion are encouraged to consult those works (Lee 1990,
Levitan 1959, Aaron 1958). The legislative events leading to the passage of the
LMRDA will be discussed briefly here, however. Following the passage of the TaftHartley Act in 1947, the first suggestions at amending the law actually came from those
whose desire was to weaken &/or repeal it and restore unions' power. In fact, there
were a number of attempts to repeal the Taft-Hartley Act and/or introduce legislation
that would restore unions' power throughout the late 1940s and early 1950s, but all of
these attempts were unsuccessful (Levitan 1959, Aaron 1958). In 1952, however, when
Dwight Eisenhower was elected president, the tide began to turn and there were few
attempts to repeal Taft-Hartley &/or repeal the greatest restrictions it imposed on
unions.
Then, in 1957, the Select Committee on Improper Activities in the Labor or Management
Field (commonly known as the McClellan Committee) began to investigate practices
related to corruption in the field of Labor Relations. Extensive hearings were held
between 1957 and 1959, and these hearings focused mostly on allegedly improper
activities by unions. The information disclosed during these investigations convinced
many within both houses that legislation was needed to curb unions' abuses. Then, in
early 1958, Senator John F. Kennedy and Senator Irving Ives introduced proposed
legislation known as the Kennedy–Ives Bill in response to the McClellan committee
hearings. Interestingly, however, that bill did not deal with union – management
relations. Rather, it was focused more on issues of union corruption, misuse of union
pension funds, etc. In fact, the Kennedy–Ives measure actually was opposed by Both
the Chamber of Commerce and the National Association of Manufacturers (Lee 1990).
In any case, the bill was debated throughout the rest of 1958 but Congress adjourned
without passing any legislation (Lee 1990).
On January 20, 1959, another bill written in part by Senator Kennedy, S.505, was
introduced into the Senate by Senator Kennedy and referred to the Senate Committee
on Labor and Public Welfare. Numerous amendments were offered over the months
that it was debated in the Senate. Some of these amendments were more restrictive of
unions and others were less so. In addition, alternative bills were offered. The
administration offered an alternative bill that was more restrictive on unions and other
proposals were offered that would have been even better for unions than the Kennedy
proposal. Debate in the Senate was quite contentious (Lee 1990). Eventually, on April
25, 1959, S.505 was passed by the Senate.
When the Kennedy Bill reached the House, as was the case in the Senate, there was a
great deal of controversy. Again, many amendments were offered, alternative
proposals were introduced and debate was quite contentious. Finally, on August 14,
Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
1959, H.R.8342, the Landrum-Griffin Bill, was passed by the House of Representatives.
This measure was much more restrictive of unions then was the measure passed by the
Senate earlier in the year. As a result, a conference committee was formed to consider
the two measures and come up with one proposal. That conference committee met
through the end of August and into September, and eventually, a compromise measure
reached. The compromise bill was passed by the Senate on September 3, 1959, by the
House on September 4, 1959 and then signed by President Eisenhower on September
14, 1959.
As will be discussed in the methodology section, all of the controversy surrounding and
the many amendments offered on the Landrum-Griffin Bill present a problem for event
study methodology.
Event studies of legislation require the identification of specific
dates on which investors would have adjusted their claims to firms' future profits as a
result of the legislation. But since there were so many days on which the bills leading to
the LMRDA were debated and amended, identifying specific dates is difficult. In
addition, one additional point about the period from the introduction of the Kennedy bill
(S.505) until the signing of the Landrum-Griffin Act needs to be made. As first
introduced, the bill was not necessarily that objectionable to unions. It contained a
number of provisions known as Taft-Hartley "sweeteners" – provisions designed to
benefit unions by weakening some of the restrictions that had been imposed upon them
in the Taft-Hartley Act. Over the next nine months, however, and especially as the bill
went through the House of Representatives, the bill became much more negative from
unions' standpoint. Virtually all of the Taft-Hartley sweeteners were removed and a
number of restrictions upon unions' conduct were added.
The Main Provisions of the LMRDA
As with the history of the LMRDA’s passage, much has been written on the provisions
of the LMRDA elsewhere and again, readers interested in the law's details are
encouraged to consult those works (Aaron 1960a, Aaron 1960b, Bureau of National
Affairs 1959). They will be summarized briefly here, however. The provisions of the
LMRDA can be divided into two different parts. The first six titles of the law focus
mainly on the internal affairs of unions and deal with the relationship between unions
and their members. For example, some of these provisions require every labor
organization to have a Constitution and bylaws, impose certain reporting requirements
on unions require democratic elections of union officers, etc. (Aaron 1960a). Since
these sections of the law placed restrictions on unions, one might expect that they
would have been harmful to them. It is less clear, however, that they would have
benefited management because since they deal only with unions themselves and the
relationship between unions and employees, their impact on management is less clear.
The other set of sections in the law deal with unions and management and cover topics
that fall within the ambit of traditional "labor law." These provisions are contained
primarily in Title VII of the LMRDA, "Amendments to the Labor Management Relations
Act, 1947, as amended." Again, much has been written about the sections elsewhere
and they will not be discussed in detail herein. What is important here, however, is to
examine whether and the extent to which these provisions would have benefited
management. This section will discuss briefly the ways in which Title VII of the LMRDA
would have impacted the union-management relationship most. Table 1 contains a
Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
listing of the sections of Title VII, lists their effect on the NLRA and lists an expectation
of whether they would have management or unions.
Section
701
702
703
704
705
706
707
Table 1: Title Vii of the LMRDA
Effect on NLRA
Allows NLRB to limit jurisdiction and to delegate its
powers to groups of 3 Board members
Allows economic strikers who have not been replaced to
vote in any elections under Section 9(c)(3) within one
year
Allows the President to fill temporary vacancies in the
Office of General Counsel
Clarifies rules regarding secondary boycotts under
Section 8(b)(4)
Outlaws “hot cargo” contracts in industries other than
construction
Adds Section 8(b)(7) to outlaw recognition picketing
Adds section 8(f) which allows unions and employers in
the construction industry to agree to certain types of
union security clauses agreements even if the union
does not represent the employer’s employees (“Pre-hire
agreements”)
Adds section 10(m) to the NLRA which requires the
NLRB to expedite handling of charges alleging violations
of 8(a)(3) and 8(b)(2) of the NLRA
States when the amendments will become effective
Benefits
?
Probably
Unions
?
Employers
Unions
Probably
Unions
?
One of the changes in the law that was most detrimental to union was the addition of
Section 8(b)(7) to the NLRA by section 704 of the LMRDA. This section deals with
"organizational picketing" (picketing in which a union's objective is to represent the
organization's employees). Section 8(b)(7) imposes a number of restrictions on unions'
ability to engage in organizational picketing and since organizational picketing is used
frequently by unions in their organizing campaigns, this new section clearly would have
benefited management to the detriment of unions. Another way in which section 704 of
The LMRDA benefited management at unions' expense deals with section 8(b)(4), the
“secondary boycott” provisions. While secondary boycotts had been outlawed by the
Taft-Hartley Act, the LMRDA tightened the restrictions contained in that section. Under
the version in the NLRA after the Landrum-Griffin Act was passed, many more activities
that unions could have engaged in prior to 1959 became illegal. Finally, Section 8(e) is
another section that was added to the NLRA by section 704 of the LMRDA. This
section deals with "hot cargo" agreements -- agreements under which the employer
agrees not to deal with the products of or do business with another employer. Hot
cargo agreements had been used often prior to 1959 by unions against management as
a pressure tactic, and making them illegal would have hampered unions and benefitted
management. Again, all three of the provisions just mentioned would have restricted
unions in ways that clearly would have benefited management.
Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
It should be pointed out, however, that while most of the provisions in Title VII of the
LMRDA were detrimental for unions and beneficial to management, there were some
provisions that actually benefited unions. First, section 9(c)(3) of the NLRA was
amended to make it clear that economic strikers – even those who had been
permanently replaced – are entitled to vote in an NLRB election held within 12 months
of the start of the strike. This provision is likely to have benefitted unions since
presumably, these employees would support their union. Another provision that
benefited unions was that the NLRB was required to give priority to any claim of
discrimination against an employer under Section 8(a)(3) or against a union under
Section 8(b)(2) of the NLRA. Since claims of discrimination are more likely to be filed
against employers than against unions, this provision likely would have benefited unions
and been detrimental to management as well. Furthermore, the Board is encouraged to
expedite its election machinery by a change to Section 3(b) of the Act that authorizes
the Board to delegate the handling of representation cases to its regional directors.
Since it has been shown that unions fare better in quicker elections (Roomkin and Block
1981, Prosteen, 1976), this position presumably would benefit unions as well. And
finally, unions dealing with employers in the construction industry would have benefited
from Section 705 of the LMRDA, which inserted section 8(f) into the NLRA. Section 8(f)
authorizes "pre-hire agreements" and other types of union security for firms in that
industry.
Nevertheless, while there was really only one section of the LMRDA (Section 704) that
would have benefited management, most commentators agree that the overwhelming
effect of the provisions in Title VII of the LMRDA would have been a benefit to
management.
3. Methodology
Event studies
This paper uses event study methodology to assess the impact of the LMRDA. Briefly,
in an event study, the shareholder returns (shareholder returns equal any change in firm
stock prices plus dividends in a given period of time) to firms given an event are
compared to a prediction of what those returns would have been absent the event, and
any difference is attributed to the event under investigation. Here, the "event" is the
passage of the LMRDA. Thus, if the actual returns given the passage of the Act are
greater than they are predicted to have been absent its passage, the event study allows
us to conclude that the event benefited those firms. This is the same methodology that
was used by Olson and Becker (1990) to demonstrate that the Wagner Act was
detrimental to management and by Abraham (1996) to demonstrate that the TaftHartley Act was beneficial to managementi. In fact, since this paper is more or less an
extension of those earlier to works and since it will be interesting to view these results in
comparison to the results reached in those works, this paper duplicates the
methodology used therein as much as possible.ii
The event study rests on the efficient-market hypothesis, which states that the price of a
firm's stock multiplied by the number of shares outstanding is an unbiased estimate of
the future profitability of the firm as perceived by the market on a given day. Therefore,
any change in a firm's stock price in response to an event is evidence of a change in the
Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
firm's anticipated profitability in response to that event. In this case, the passage of the
LMRDA is the event and the change in stock prices in response to the event show the
firms' changing profitability in response to the law.
Note that researchers who use the efficient-market model to test the impact of particular
events are not concerned with predicting the level of the Dow Jones Industrial Average,
the NASDAQ, or any other overall market indicator. Instead, what this methodology
does is examine the movement of a particular set of shareholder returns (in firms
particularly affected by an event) relative to the movement of the overall market on a
particular set of days. The level of the overall market is the control variable in the
empirical analysis. While there are critics of the efficient market hypothesis and event
studies and who draw on models of herd behavior/social dynamics (Bannerjee ,1992;
Bikhchandani et al., 1991), most researchers who have investigated the subject of
market efficiency in detail provide evidence in support of the concept (Gilson and
Kraakman, 2003; Malkiel, 2003), and event-study methodology has been used
successfully to assess the effects of legislation in many prior studies (Chandy et al.,
1995; Hackl and Testani, 1988; Connor, 1989; Romano, 1987).
The Event Dates
In event studies, the days on which investors adjusted their estimates of the value of
their claims to future profits that would occur as a result of the event being tested are
referred to as event dates. When testing the effects of legislation, the researcher must
identify every date on which investors concluded that the value of their claims to firm
profits would change as a result of the legislation and the probability of its passage.
Shareholder returns of the firms likely to have been affected by the law are examined on
these dates to assess its effect on the market. Identifying the correct event dates is
critical to an event study because omitting dates that are relevant to the legislation will
underestimate the impact of the law while including events that are not relevant will
introduce additional variability without adding any new information.
As indicated earlier, however, identifying the correct event dates for the LMRDA is
problematic. From the introduction of S.505 on January 20, 1959 until the law was
signed by President Eisenhower on September 14 of that year, the law was debated
frequently in both houses, many amendments were offered, etc. Further, one might
argue that the event dates for the LMRDA really began in 1958 when the Kennedy-Ives
Bill was first introduced. Therefore, it is difficult to know on which dates investors would
have adjusted their expectations of the effects of the law on firm profits and this makes
it difficult to select specific dates to utilize in the empirical analysis, potentially leading to
incorrect results.
For the purposes of these analyses, the events listed in "the
chronological statement of legislative history of the Labor-Management Reporting and
Disclosure Act of 1959 (1985) were used as the event dates. That chronological
statement lists every date on which there was activity relevant to the LMRDA and what
occurred on that date, from the introduction of S.505 (the bill that was the precursor to
the bill that eventually would become the LMRDA) until the law's signing on September
14 of 1959. Table 2 lists the dates that were included in the analysis.
For each event date, shareholder returns were examined over a three-day window
including the date itself, one day before and one day after. Event-study research
Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
typically utilizes three-day windows around event dates to allow for two possibilities.
First, information about the event may have been leaked to the market before the date
the event occurred, making it necessary to examine shareholder returns one day prior
to each event date. Second, the market might have had a delayed reaction, particularly
if the event took place so late in the day that its effect was not reflected in security
prices until the next day, making it necessary to examine shareholder returns one day
after each event date. The period consisting of the three day windows surrounding
each date listed on the Bill Tracking Sheet is referred to as an event period.
In addition, two other event periods were used in this research. One period examined
shareholder returns over the entire period from the introduction of S.505 into the Senate
on January 20, 1959 until the law was signed by President Eisenhower on September
14, 1959. This event period was used because as stated earlier, there was a great deal
of legislative activity surrounding the passage of the LMRDA during the months that it
was debated in both houses. Therefore, since selecting specific event dates related to
the law is nearly impossible, it is necessary to examine shareholder returns over all of
those days. Further, since Olson in Becker (1990) tested the effects of the Wagner Act
and Abraham (1996) tested the effects of the Taft-Hartley Act with monthly data,
examining shareholder returns over each date the bill was debated will facilitate
comparisons among the three papers.
The final period examined shareholder returns from September 2, 1959 until September
5, 1959. This final event period was utilized because as discussed earlier, the versions
of the new law that passed the House and Senate were very different and it was
Table 2: Event Days of the LMRDA
Date
Reason
January 20
S.5050 Introduced
February 12
March 5
S.748 Introduced; President Issues Message on Labor-Management
Relations
S.1311 Introduced
March 25
S.1555 Introduced
April 14
April 25
S.1555 favorably reported to the Senate by the Committee on Labor
and Public Welfare
S.1555 passed Senate (90-1)
May 20
H.R.7265 Introduced
July 23
H.R.8342 Introduced
July 24
H.R.8400 Introduced
Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
July 30
August 3
H.R. 8400 favorably reported to the House by the Committee on
Education and Labor
H.R.8490 Introduced
August 11
H.R.8342 Passed, As Amended
August 14
H.R.8342 Passed, as Amended (229-201)
September 3
S.1555 Passed Senate Conference Committee
September 4
S.1555 Passed House (352-52)
September
14
S.1555 Approved by President
necessary for a conference committee to resolve the discrepancies and come up with a
final bill. September 3 was the date on which the new bill was passed by the Senate
and September 4 was the date on which it was passed by the House. This final event
window examines shareholder returns on those two days plus one day prior and one
day following (these periods are referred to as Tests I, II, and III, respectively)..
The Samples
An examination of the LMRDA, like any event study, relies on an accurate definition of
which publicly traded firms would have been affected by that law more than the average
publicly-traded firm. The effects of the LMRDA on all firms will be picked up by the
market index; only firms that would have been affected by the law more than the
average firm will have abnormal returns in response to the passage of the law.
Three different samples of firms were used in this paper. One sample consisted of the
firms that were used by Abraham (1996) to assess the effects of the Taft-Hartley Act
(the THA sample), one sample consisted of the firms utilized by Olson and Becker
(1990) in assessing the effects of the Wagner Act (the O&B sample) and the third
sample consisted of the "8b4 subsample" utilized by Abraham (1996) (the 8b4 sample).
As discussed above, the LMRDA made a number of changes to Section 8(b)(4) of the
NLRA and since that subsample was chosen by Abraham (1996) as consisting of firms
in industries that were especially likely to have been affected by that Section of the TaftHartley Act, thought that those firms might have been affected by the LMRDA even
more than the other firms in the "Abraham" sample.
4. Results and Discussion
The results from the three tests are presented in Table 3. Clearly, these results run
contrary to expectations. For both the THA and the O&B samples, the results were
negative and significant for tests I and II while for the 8b4 sample, we cannot conclude
that the Act had any effect. Specifically, looking at Test I (the event days plus one day
on each side of the event day), shareholders return decreased by 2.77% in the THA
sample and by 3.78% in the O&B sample and looking at Test II, returns decreased by
Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
4.16% in the THA sample and by 4.7% in the O&B sample. As indicated earlier, it is
very possible that Test II is the most accurate test in this situation because in the eight
months that the LMRDA was debated, much activity occurred, many amendments were
offered and voted upon, and is difficult to determine which of the most important dates
in the Act's passage. While it is true that such a long period presents problems because
many other events would have occurred during those eight months that might have
affected these firms' shareholder returns, Test II might well be the most accurate
assessment of the LMRDA's effect on shareholder returns. Furthermore, as discussed
above, this increases the ability to compare the results in this investigation with the
results in Olson and Becker (1990) and Abraham (1996). And the negative returns for
both the Overall Sample and the O&B Sample are clearly contrary to expectations.
Test
Test I
Test II
Test III
Table 3: Cumulative Abnormal Return (CAR)
Interval
THA
O&B
Sample
Sample
Event days, minus 1 to plus
1
All days from introduction to
passage)
Sept. 2 – Sept. 5
8b4
Sample
-2.77*
-3.78*
.09
-4.16**
-4.7**
-1.28
-.68
-.37
-.73
t-statistic, 98 degrees of freedom
* p-value <.05; ** p-value <.01
Therefore, it is necessary to attempt to provide an explanation for why investors
concluded that the Act would be detrimental to management. Because as discussed
above, the efficient market hypothesis holds that investors assessed correctly the
impact of events on the future profitability of firms affected by those events. Therefore,
the results discussed above show that investors concluded that the passage of the
LMRDA was detrimental to management. Why? Is it possible that the provisions of the
LMRDA that covered union management relations were not beneficial to management?
While this is possible, this explanation seems unlikely. As stated earlier, while there
were provisions of the law that would have benefited unions and been detrimental to
management, the majority of experts who have assessed the Act have concluded that it
would have benefited management. After doing an exhaustive search, however, there
appears to be no reason for investors to have expected the LMRDA to be detrimental
for management. In fact, perhaps the most surprising set of results is are those from
test II, the entire period from the introduction of the Kennedy–Ives bill through president
Eisenhower's signing of the law. As discussed above, when S.505 was first introduced,
it contained a number of "Taft-Hartley sweeteners" (provisions designed to make the bill
attractive to unions by easing some of the restrictions that the Taft-Hartley Act had
placed). Over the period of time from that bill was introduced until the LMRDA was
passed, however, the majority of those provisions were removed and the LMRDA was
made much stricter against unions.
Therefore, if anything, we would expect
shareholder return to have increased over time as various amendments made it less
palatable to unions and more beneficial to management. The reported results,
Proceedings of 7th Annual American Business Research Conference
23 - 24 July 2015, Sheraton LaGuardia East Hotel, New York, USA, ISBN: 978-1-922069-79-5
however, run directly contrary to this, which can be seen by comparing the results from
Test II and Test III. The results from Test II – the tests that examine the entire period
when the law was being debated – were negative and significant for both the THA and
the O&B subsamples while the results for Test III – the final days when the
disagreements between both houses were resolved – were insignificant. Further, a
search of various newspapers and other sources reveals no other information during
that time period shows nothing that would have induced a reduction in shareholder
returns of the firms in these samples. Therefore, some other explanation must exist.
One possible explanation for the results is that perhaps the provisions in Title I through
Title VI of the law actually wound up being beneficial for unions. And since it is
generally presumed that anything that benefits unions will a fortiori, be detrimental for
management, shareholder returns wound up decreasing in response to these
provisions. As stated earlier, impetus for the LMRDA was the McClellan Committee
hearings that were held commencing in 1957 to investigate practices related to
corruption in the field of Labor Relations. During the time that the hearings were held,
unions received a great deal of bad press and it is quite likely that their public image
was very much blackened as a result. In response, Congress enacted the provisions in
titles I through VI of the LMRDA, which imposed a number of provisions designed to
address the committee's findings. Is it possible that investors, who had developed an
extremely negative view of unions prior to the LMRDA, believed that that Act would
improve unions' public image, thereby benefiting them? And is it further possible that
the market feared that an improved public image for unions would be detrimental to
management? Of course, the answers to this are purely speculative but they would
explain the results obtained here.
5. Conclusion
The results discussed above show that shareholder returns to three samples of firms
likely to have benefited the LMRDA fell in response to the law's passage. This is
contrary to a priori expectations since the law is presumed to have been detrimental to
unions and beneficial to management. Therefore, a according to the efficient market
hypothesis, shareholder returns should have risen in response to the law's passage.
The most plausible explanation seems to be that the restrictions imposed on unions
enabled them to improve their public image. If unions were seen as being cleaner and
less subject to corruption by the market, this might have benefited them. And since the
market generally presumes that anything that benefits unions is likely to be detrimental
to management, shareholder returns might have dropped in response to the law's
passage.
i
An appendix with a full explanation of the methodology is available on request.
There is one exception, however. Olson and Becker (1990) and Abraham (1996) used monthly data because daily
data was not available at the time the Wagner Act and the Taft-Hartley Act were passed. This paper utilizes daily
data, which should increase the accuracy of the results. Monthly data examines shareholder returns over an entire
month and many different things that could affect firms' shareholder returns occur in a given month, where is dally
data examine returns for a particular day, increasing the likelihood that any abnormal returns are due to the event
being investigated.
ii
Proceedings of 7th Annual American Business Research Conference
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