Banking

When Cash Isn't King: The Case Of Unionized Firms

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Executive Summary

When is cash not king? Holding excess cash reserves can be less desirable when a firm has a more unionized workforce. The author finds that firms in more unionized industries strategically hold less cash to gain bargaining advantages over union demands. But there are trade-offs in holding less cash. For example, in the case of Ford Motor Co., cash saved the day in comparison to the morass in which General Motors (GM) and Chrysler find themselves. The author says, "The risk of holding lower cash reserves becomes apparent when there's an economic downturn. Without cash on hand, a firm could suffer the fate of GM or Chrysler and go into bankruptcy."

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