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Employment Protection and Investment Opportunities

Author

Listed:
  • Claudio F. Loderer

    (University of Berne - Institute for Financial Management; European Corporate Governance Institute (ECGI); Swiss Finance Institute)

  • Urs Waelchli

    (Rochester-Bern Executive Programs; University of Rochester - Simon Business School)

  • Jonas Zeller

    (University of Berne – Institute for Financial Management)

Abstract

Even though firms’ innovation efforts dwindle in reaction to weaker employment protection legislation (EPL), we show that the value of their investment opportunities actually increases. The reason is that weaker EPL discourages innovation efforts only in firms with little comparative advantage at innovation. At the same time, however, weaker EPL increases the financial and operating flexibility of firms. This flexibility gain can explain why Tobin’s q increases in reaction to weaker EPL.

Suggested Citation

  • Claudio F. Loderer & Urs Waelchli & Jonas Zeller, 2016. "Employment Protection and Investment Opportunities," Swiss Finance Institute Research Paper Series 16-07, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1607
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    File URL: http://ssrn.com/abstract=2726588
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    More about this item

    Keywords

    employment protection; innovation; investment opportunities; financial flexibility; operating flexibility;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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