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Shielding firm value: Employment protection and process innovation

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  • Bena, Jan
  • Ortiz-Molina, Hernán
  • Simintzi, Elena

Abstract

Following state-level legal changes that increase labor dismissal costs, firms increase their innovation in new processes that facilitate the adoption of cost-saving production methods, especially in industries with a large share of labor costs in total costs. Firms with high innovation ability exhibit larger increases in process innovation and capital-labor ratios, an effect driven by both increases in capital investment and decreases in employment. By facilitating the adjustment of the input mix when conditions in input markets change, innovation ability allows firms to mitigate value losses and is a key driver of their performance.

Suggested Citation

  • Bena, Jan & Ortiz-Molina, Hernán & Simintzi, Elena, 2022. "Shielding firm value: Employment protection and process innovation," Journal of Financial Economics, Elsevier, vol. 146(2), pages 637-664.
    • Handle: RePEc:eee:jfinec:v:146:y:2022:i:2:p:637-664
    DOI: 10.1016/j.jfineco.2021.10.005
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    3. Igor Fedotenkov & Virmantas Kvedaras & Miguel Sanchez-Martinez, 2024. "Employment protection and labour productivity growth in the EU: skill-specific effects during and after the Great Recession," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 51(1), pages 209-262, February.
    4. Xun Wang & Jingwen Yu, 2023. "Accumulating human capital: Corporate innovation and firm value," International Review of Finance, International Review of Finance Ltd., vol. 23(4), pages 750-776, December.
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    6. Rammer, Christian, 2023. "Measuring process innovation output in firms: Cost reduction versus quality improvement," Technovation, Elsevier, vol. 124(C).
    7. Yao, Wenyun & Lu, Feier & Wang, Yuting & Song, Zilong, 2023. "Social insurance contributions and firms' debt concentration choice: A quasi-natural experiment based on the implementation of China's social insurance law," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).

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    More about this item

    Keywords

    Process innovation; Employment protection; Operating leverage;
    All these keywords.

    JEL classification:

    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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