Employment Protection and Investment Opportunities

Claudio F. Loderer, Urs Waelchli and Jonas Zeller
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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

No 16-07, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

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.

Keywords: employment protection; innovation; investment opportunities; financial flexibility; operating flexibility (search for similar items in EconPapers)
JEL-codes: G30 L20 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2016-02
New Economics Papers: this item is included in nep-cfn, nep-cse and nep-ino
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1607

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