How Labor Unions Affect Firm Value: Evidence from Political Contributions in the United States

This paper investigates the relation between political engagement by special interest groups (corporations and labor unions) and corporate stock returns in the United States. Exploiting two opposing interventions affecting the legality of soft-money political contributions from unions and corporations, we find that abnormal returns around the ban (repeal) of soft-money contributions are positively (negatively) related to unionization. These results suggest that political spending by labor unions has a meaningfully deleterious effect on the value of unionized corporations. To counter-engage labor unions in the political arena, we find that unionized firms provide more support (i.e., hard-money contribution) for Republicans.