Graduation Year
2024
Date of Submission
4-2024
Document Type
Campus Only Senior Thesis
Degree Name
Bachelor of Arts
Department
Economics
Reader 1
Professor Andrew Finley
Terms of Use & License Information
Rights Information
© 2024 Aryan Totawat
Abstract
Past analyses of strikes and their effect on shareholder returns usually focus on the wage bargain and scheduled contract negotiations between firms and labor unions. This ignores the wide variety of grievances and demands that often spur workers to stage ‘walkouts’ and work stoppages outside the context of scheduled negotiations with the employer. This study uniquely considers workers’ motivations behind the strike, evaluating how different demands made by workers may have a varying impact on capital markets’ valuation of the firm. To quantify the impact of the strike, daily ‘abnormal’ returns are computed using the market model methodology and then aggregated over a period surrounding the day of the strike’s outbreak, giving the cumulative abnormal returns (CAR) over the event period. In general, this study finds that strike outbreaks are associated with statistically significant negative CAR’s, amounting to a mean of 2.90% when aggregated starting 30 days before the strike’s outbreak and up to each strike’s end date; if the event period is extended up to 30 days after the strike’s outbreak, this figure reaches 3.78%. About half of the strike’s costs are anticipated and ‘priced in’ by the market before the strike’s outbreak. Evaluating how CAR’s vary for strikes with different workers’ demands, it appears that strikes focusing on compensation – specifically those that include ancillary benefits as part of their demands – and strikes with political agendas are costliest for employers. This study also finds that strike costs – as estimated by the magnitude of negative CAR’s – increase the longer a strike continues. The results of this study are notable not only for investors seeking to build a portfolio strategy to earn abnormal returns from firms that incur strikes, but also for the bargaining strategies of firms and unions as they evaluate the potential costs of incurring or prolonging a strike, as well as how certain concessions impact their profit or utility streams.
Recommended Citation
Totawat, Aryan, "The Impact of Labor Strikes on Employers' Shareholder Returns with Consideration of the Nature of Workers' Demands" (2024). CMC Senior Theses. 3615.
https://scholarship.claremont.edu/cmc_theses/3615
This thesis is restricted to the Claremont Colleges current faculty, students, and staff.
