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Do labor mobility restrictions affect debt maturity?

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  • Ee, Mong Shan
  • Huang, He
  • Cheng, Mingying

Abstract

Prior literature finds that staggered state-level adoption of the Inevitable Disclosure Doctrine (IDD) significantly constrains labor mobility. Using the IDD as an exogenous shock to labor mobility, we find that firms headquartered in states that adopt the IDD gravitate towards issuing short-term debt for external debt financing. We examine three mechanisms—default risk, information asymmetry, and agency cost mitigation—through which labor mobility restrictions affect debt maturity. Our results provide support for the information asymmetry mechanism, which suggests that firms are more inclined to use short-term debt when their information environment deteriorates. We find that in the wake of IDD adoption, firms tend to utilize short-term debt only in corporate bond markets and their debt maturity profiles become more concentrated.

Suggested Citation

  • Ee, Mong Shan & Huang, He & Cheng, Mingying, 2023. "Do labor mobility restrictions affect debt maturity?," Journal of Financial Stability, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:finsta:v:66:y:2023:i:c:s1572308923000219
    DOI: 10.1016/j.jfs.2023.101121
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    More about this item

    Keywords

    Labor mobility restrictions; Debt maturity; Inevitable disclosure doctrine;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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