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Labor Protection and Leverage

Author

Listed:
  • Elena Simintzi
  • Vikrant Vig
  • Paolo Volpin

Abstract

This paper exploits intertemporal variations in employment protection across countries and finds that rigidities in labor markets are an important determinant of firms' capital structure decisions. Over the 1985–2007 period, we find that reforms increasing employment protection are associated with a 187 basis point reduction in leverage. We interpret this finding to suggest that employment protection increases operating leverage, crowding out financial leverage. This result does not appear to be due to pretreatment differences between treated and control firms, omitted variables, unobserved changes in regional economic conditions, and reverse causality. Heterogeneous treatment effects are consistent with our economic intuition.

Suggested Citation

  • Elena Simintzi & Vikrant Vig & Paolo Volpin, 2015. "Labor Protection and Leverage," Review of Financial Studies, Society for Financial Studies, vol. 28(2), pages 561-591.
  • Handle: RePEc:oup:rfinst:v:28:y:2015:i:2:p:561-591.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhu053
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    Cited by:

    1. repec:kap:jeczfn:v:122:y:2017:i:3:d:10.1007_s00712-017-0553-5 is not listed on IDEAS
    2. repec:eee:ecmode:v:71:y:2018:i:c:p:220-233 is not listed on IDEAS
    3. Moro, Andrea & Maresch, Daniela & Ferrando, Annalisa & Udell, Gregory F., 2017. "Does employment protection legislation affect credit access? Evidence from Europe," Working Paper Series 2063, European Central Bank.
    4. Matthias Efing & Harald Hau & Patrick Kampkktter & Jean-Charles Rochet, 2018. "Bank Bonus Pay as a Risk Sharing Contract," Working Papers hal-01847442, HAL.
    5. repec:eee:jbfina:v:94:y:2018:i:c:p:1-15 is not listed on IDEAS
    6. Pezone, Vincenzo, 2017. "Unemployment Risk and Payout Policies," MPRA Paper 83918, University Library of Munich, Germany.
    7. D’Acunto, Francesco & Liu, Ryan & Pflueger, Carolin & Weber, Michael, 2018. "Flexible prices and leverage," Journal of Financial Economics, Elsevier, vol. 129(1), pages 46-68.
    8. repec:bla:finmgt:v:47:y:2018:i:4:p:993-1027 is not listed on IDEAS
    9. repec:eee:jfinec:v:127:y:2018:i:2:p:303-324 is not listed on IDEAS
    10. repec:eee:jfinec:v:128:y:2018:i:2:p:266-286 is not listed on IDEAS
    11. You, Jing & Wang, Shaoyang, 2018. "Unemployment duration and job-match quality in urban China: The dynamic impact of 2008 Labor Contract Law," Economic Modelling, Elsevier, vol. 71(C), pages 220-233.
    12. Peng XU, 2019. "Exit of Small Businesses: Differentiating between Insolvency, Voluntary Closures and M&A," Discussion papers 19051, Research Institute of Economy, Trade and Industry (RIETI).
    13. Jie (Jack) He & Tao Shu & Huan Yang, 2018. "The Employee Clientele of Corporate Leverage: Evidence from Personal Labor Income Diversification," Working Papers 18-01, Center for Economic Studies, U.S. Census Bureau.
    14. John, Kose & Knyazeva, Anzhela & Knyazeva, Diana, 2015. "Employee rights and acquisitions," Journal of Financial Economics, Elsevier, vol. 118(1), pages 49-69.
    15. Qiu, Yue & Shen, Tao, 2017. "Organized labor and loan pricing: A regression discontinuity design analysis," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 407-428.
    16. repec:eee:jfinin:v:37:y:2019:i:c:p:28-44 is not listed on IDEAS
    17. repec:eee:jbfina:v:89:y:2018:i:c:p:150-168 is not listed on IDEAS
    18. repec:eee:jfinec:v:125:y:2017:i:2:p:369-388 is not listed on IDEAS
    19. Chino, Atsushi, 2016. "Do labor unions affect firm payout policy?: Operating leverage and rent extraction effects," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 156-178.
    20. USHIJIMA Tatsuo, 2016. "Corporate Diversification, Employee Bargaining Power, and Wages," Discussion papers 16103, Research Institute of Economy, Trade and Industry (RIETI).
    21. Setzer, Ralph & Stieglitz, Moritz, 2019. "Firm-level employment, labour market reforms, and bank distress," IWH Discussion Papers 15/2019, Halle Institute for Economic Research (IWH).
    22. Schmalz, Martin, 2018. "Unionization, Cash, and Leverage," CEPR Discussion Papers 12595, C.E.P.R. Discussion Papers.
    23. Ghaly, Mohamed & Dang, Viet Anh & Stathopoulos, Konstantinos, 2015. "Cash holdings and employee welfare," Journal of Corporate Finance, Elsevier, vol. 33(C), pages 53-70.
    24. repec:eee:pacfin:v:50:y:2018:i:c:p:126-143 is not listed on IDEAS
    25. Belkhir, Mohamed & Ben-Nasr, Hamdi & Boubaker, Sabri, 2016. "Labor protection and corporate Debt maturity: International evidence," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 134-149.

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