Labor Voice in Corporate Governance: Evidence from Opportunistic Insider Trading

Abstract

This study examines whether labor plays a role in corporate governance by deterring opportunistic insider behavior. Results suggest that firms with organized labor experience statistically significant declines in opportunistic insider trading activity and profitability. We show three economic mechanisms that explain labor's disciplinary effect on opportunistic insider trading behavior: employee welfare, activist union-affiliated institutional investors, and media and political support. Further analyses suggest that labor's corporate governance reduces the incidence of illegal insider trading, enhances firm productivity and performance, and lowers insider trades' return predictability.