Employee unionization at a customer firm lowers the trade credit it receives from suppliers

Employee unionization continues to emerge across U.S. public firms. Prior research has documented that unionization can alter a firm’s labor costs, operating flexibility, and cash-flow stability. We reason that these changes may increase its suppliers’ uncertainty about the (customer) firm’s capacity to pay its trade credit. Therefore, unionization may lead to a decline in the aggregate trade credit the customer receives from its suppliers. Next, we hypothesize that suppliers use the customer firm’s pre-unionization signals to assess repayment uncertainty, and that these signals may amplify or attenuate suppliers’ responses to unionization. We test our hypotheses empirically using 1,378 employee union elections conducted by the National Labor Relations Board (NLRB) for 909 U.S. public firms from 1977 to 2021. Regression discontinuity estimates support our hypotheses. Specifically, unionization reduces a firm’s access to trade credit by 4.2 percentage points, amounting to $220.4 million for an average firm in our sample. Furthermore, we show that three pre-unionization signals—product-market scope, product-market fluidity, and prior sales growth—differentially shape suppliers’ responses to a customer firm’s unionization. Additional results show that, following unionization, fewer suppliers report the unionized customer firm as a major customer. The findings inform managers that employee decisions can affect supplier decisions. However, managers can proactively shape suppliers’ beliefs about repayment by managing pre-unionization signals.