Collateral menus and corporate employment: Evidence from China's Property Law

We investigate whether introducing the collateral menus of liquid assets (e.g., inventory and accounts receivable) influences corporate hiring decisions. Our identification scheme treats the enactment of China's Property Law in 2007 as a quasi-natural experiment and then conducts a difference-in-differences estimation. The results show that firms with less net fixed assets hire more workers, particularly for firms with tighter financial constraints, higher labor intensity and those located in cities with stricter law enforcement, greater fiscal pressure and lower bank density. Further analysis shows that liquid assets help firms obtain more debt, save less cash, decrease the cash flow sensitivity of cash and investment and invest more in fixed assets, consistent with the collateral channel. In addition, a significant convergence of labor productivity across firms illustrates that the Property Law also has a labor reallocation effect. Our findings shed light on the importance of expanding collateral menus in maintaining employment during the COVID-19 pandemic.