Review of Financial Studies· 2014Q1
Labor Protection and Leverage
- 416citations
- Q1SCImago
- 2014year
Short summary
Reforms increasing employment protection are associated with an 187 basis point reduction in firm leverage, suggesting increased operating leverage crowds out financial leverage.
AI-generated from the title and abstract; the full text is not read.
Key points
- Reforms increasing employment protection are linked to a 187 basis point reduction in firm leverage.
- This effect is interpreted as increased operating leverage crowding out financial leverage.
- The findings are robust to various controls for pretreatment differences, omitted variables, and reverse causality.
- Heterogeneous treatment effects align with economic predictions.
AI-generated from the title and abstract; the full text is not read.
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.
The authors' abstract, as published at the source. Review of Financial Studies, 2014 · DOI ↗
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Field: Public Administration
Public AdministrationSocial Sciences