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Corporate Leverage and Employees’ Rights in Bankruptcy

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Corporate leverage responds differently to employees’ legal protection in bankruptcy depending on whether leverage is chosen to curtail workers’ bargaining power or is driven by credit constraints. Using newly collected cross-country data on employees’ rights in corporate bankruptcy, we estimate the impact of such rights on firms’ capital structure, applying triple-diff strategies that exploit time-series, cross-country and firm-level variation. The estimates show that leverage increases more substantially in response to rises in corporate property values or in profitability at firms where employees have strong seniority in liquidation and weak rights in restructuring, consistently with the strategic use of leverage.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 472.

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Date of creation: 18 Apr 2017
Handle: RePEc:sef:csefwp:472
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  1. Huafeng (JASON) Chen & Marcin Kacperczyk & Hernán Ortiz-Molina, 2011. "Do Nonfinancial Stakeholders Affect the Pricing of Risky Debt? Evidence from Unionized Workers," Review of Finance, European Finance Association, vol. 16(2), pages 347-383.
  2. Matthew Serfling, 2016. "Firing Costs and Capital Structure Decisions," Journal of Finance, American Finance Association, vol. 71(5), pages 2239-2286, October.
  3. Perotti, Enrico C & Spier, Kathryn E, 1993. "Capital Structure as a Bargaining Tool: The Role of Leverage in Contract Renegotiation," American Economic Review, American Economic Association, vol. 83(5), pages 1131-1141, December.
  4. Söhnke M. Bartram, 2016. "Corporate Post-Retirement Benefit Plans and Leverage," Review of Finance, European Finance Association, vol. 20(2), pages 575-629.
  5. Baldwin, Carliss Y, 1983. "Productivity and Labor Unions: An Application of the Theory of Self-Enforcing Contracts," The Journal of Business, University of Chicago Press, vol. 56(2), pages 155-185, April.
  6. Hanka, Gordon, 1998. "Debt and the terms of employment," Journal of Financial Economics, Elsevier, vol. 48(3), pages 245-282, June.
  7. Xiaoqiang Hu & Fabio Schiantarelli, 1998. "Investment And Capital Market Imperfections: A Switching Regression Approach Using U.S. Firm Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 466-479, August.
  8. Stephen G. Bronars & Donald R. Deere, 1991. "The Threat of Unionization, the Use of Debt, and the Preservation of Shareholder Wealth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 231-254.
  9. Marianne Bertrand & Sendhil Mullainathan, 2001. "Are CEOs Rewarded for Luck? The Ones Without Principals Are," The Quarterly Journal of Economics, Oxford University Press, vol. 116(3), pages 901-932.
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