The Effect of Two-Tier Collective Bargaining Agreements on Shareholder Equity

Abstract

This study uses an event-time methodology to examine the impact of two-tier agreements on shareholder equity from 1981 through 1986. Following announcements of two-tier agreements, about half of the firms in the sample had negative abnormal returns (returns with values below the expected market returns) and half had positive abnormal returns. Because the positive returns exceeded the negative returns in absolute value, however, there was a statistically significant increase in mean firm value. The abnormal returns averaged between + 2% and + 4% over a 10- to 12-week period following the announcement, a figure that approximately equals the transactions cost of a stock purchase. The authors speculate that this rather low average gain may help explain the marked decline of new two-tier agreements during the latter half of the 1980s.