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Employment Protection Laws and Privatization

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  • Krishnamurthy Subramanian
  • William Megginson

Abstract

Is privatization in a country related to the stringency of its employment protection laws (EPLs)--and, if so, how? We address these questions using privatization deals in 14 European countries over 3 decades and the changes in EPLs in a country. Using traditional difference-in-differences tests exploiting major changes and generalized difference-in-differences tests for the full sample, we find that stringent EPLs discourage privatization. For identification, we use two sets of triple-difference tests that control for country-level omitted variables using fixed effects for each country-year pair. First, using cross-sectional differences across industries in a country, we find that the effect of EPLs on privatization is disproportionately greater in industries in which separation rates and relocation rates are higher. Second, using productivity measures for US industries as an instrument, we find that the effect of EPLs on privatization is disproportionately greater in less productive industries.

Suggested Citation

  • Krishnamurthy Subramanian & William Megginson, 2018. "Employment Protection Laws and Privatization," Journal of Law and Economics, University of Chicago Press, vol. 61(1), pages 97-123.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/698212
    DOI: 10.1086/698212
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    Cited by:

    1. David Arnold, 2019. "The Impact of Privatization of State-Owned Enterprises on Workers," Working Papers 625, Princeton University, Department of Economics, Industrial Relations Section..
    2. Karpuz, Ahmet & Kim, Kirak & Ozkan, Neslihan, 2020. "Employment protection laws and corporate cash holdings," Journal of Banking & Finance, Elsevier, vol. 111(C).
    3. Francis, Bill B. & Kim, Incheol & Wang, Bin & Zhang, Zhengyi, 2018. "Labor law and innovation revisited," Journal of Banking & Finance, Elsevier, vol. 94(C), pages 1-15.
    4. Emanuela Carbonara & Giuseppina Gianfreda & Enrico Santarelli & Giovanna Vallanti, 2021. "The impact of intellectual property rights on labor productivity: do constitutions matter? [Research and development in the growth process]," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 30(4), pages 884-904.
    5. Teresa Chu & In-Mu Haw & Simon S. M. Ho & Xu Zhang, 2020. "Labor protection, ownership concentration, and cost of equity capital: international evidence," Review of Quantitative Finance and Accounting, Springer, vol. 54(4), pages 1351-1387, May.
    6. Karpuz, Ahmet & Luo, Di & Xiao, Rongbing & Zhao, Huainan, 2023. "The effect of labour protection laws on the relationship between leverage and wages," Journal of Banking & Finance, Elsevier, vol. 148(C).

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