Collective Bargaining and Strategic Disclosure in Earnings Conference Calls

Prior studies provide extensive evidence that unionized firms tend to have more negative disclosure than non-unionized firms do. These studies interpret this behavior as managers of unionized firms manipulating disclosure to gain an advantage in collective bargaining but do not directly test this assumption. An alternative explanation is that unionized firms disclose truthfully on their union-deflated prospects. Using measures that are specifically designed to capture deceptive behaviors, we find that (1) managers of unionized firms tend to script their answers in conference calls to a greater extent when union-related proprietary costs are higher, (2) unionized firm managers actively cast earnings calls with unfavorable analysts before labor negotiations, (3) when union-related proprietary costs are higher, a larger share of managers’ negative language occurs in sentences with linguistic cues of deception, (4) when the firms have weak unions and operate in states with Right-to-Work laws, managers tend to be “truth-tellers,” and (5) managers of unionized firms use scripting and deceptively negative language, but not casting, more often than managers of non-unionized firms. Our findings provide confirmatory evidence that unionized firms manipulate disclosure to mitigate union-related proprietary costs. However, we also find that there are subsets of unionized firms that disclose truthfully.