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Outside employment opportunities, employee productivity, and debt discipline

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  • Kale, Jayant R.
  • Ryan, Harley E.
  • Wang, Lingling

Abstract

Using a sample of over 99,000 firm year observations encompassing >13,800 firms from 1978 to 2007, we analyze how changes in labor market conditions influence the disciplining effect of debt on employee productivity. We document that better (worse) outside employment opportunities weaken (strengthen) the disciplinary effect of debt on employee output. The influence of outside employment options on leverage-output relation is robust to various controls for endogeneity, including using instrumental variables, a quasi-natural experiment, both firm and industry-level analysis, alternative model specifications, and controls for employees' work conditions and changes in work efficiencies. Altogether, our findings highlight the importance of labor market conditions on the efficacy of corporate financial policies and our understanding of how these policies influence economic outcomes.

Suggested Citation

  • Kale, Jayant R. & Ryan, Harley E. & Wang, Lingling, 2019. "Outside employment opportunities, employee productivity, and debt discipline," Journal of Corporate Finance, Elsevier, vol. 59(C), pages 142-161.
    • Handle: RePEc:eee:corfin:v:59:y:2019:i:c:p:142-161
    DOI: 10.1016/j.jcorpfin.2016.08.005
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    Cited by:

    1. Xuan Zhang, 2023. "The impact of digital finance on corporate labor productivity: evidence from Chinese-listed companies," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 50(3), pages 527-550, September.
    2. Çolak, Gönül & Korkeamäki, Timo, 2021. "CEO mobility and corporate policy risk," Journal of Corporate Finance, Elsevier, vol. 69(C).
    3. Ma, Guangyuan & Kong, Dongmin & Liu, Shasha, 2023. "Credit stimulus and corporate excess employees," International Review of Financial Analysis, Elsevier, vol. 89(C).
    4. Meng Chao & Chen Chen & Xu Heng & Li Ting, 2024. "Asset Pricing and Portfolio Investment Management Using Machine Learning: Research Trend Analysis Using Scientometrics," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 18(1), pages 1-20.
    5. Raz, Arisyi F., 2023. "Bank liquidity creation and religious observance: Evidence from Ramadan fasting," Journal of Corporate Finance, Elsevier, vol. 83(C).
    6. Hennig, Jan C. & Ahrens, Carolin & Oehmichen, Jana & Wolff, Michael, 2023. "Employee stock ownership and firm exit decisions: A cross-country analysis of rank-and-file employees," Accounting, Organizations and Society, Elsevier, vol. 104(C).

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    More about this item

    Keywords

    Debt discipline; Agency theory; Outside employment opportunities; Employee productivity;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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