Labor protection and leverage

Simintzi, E and Vig, V and Volpin, P (2014) Labor protection and leverage. The Review of Financial Studies, 28 (2). pp. 561-591. ISSN 0893-9454

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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.

Item Type: Article
Additional Information: © 2014 Oxford University Press / Society for Financial Studies
Subjects: I > Investment appraisal
L > Labour supply
Subject Areas: Finance
DOI: 10.1093/rfs/hhu053
Date Deposited: 21 Nov 2016 13:05
Last Modified: 21 Nov 2016 13:05

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