Labor cost and stock price crash risk: Evidence from China

Qi Tang

Finance Research Letters, 2023, vol. 55, issue PB

Abstract: This study investigates the causal impact of labor cost on stock price crash risk in China. We utilize a quasi-natural experiment, the 2011 "Social Insurance Law," as an exogenous shock to labor cost and employ a difference-in-differences estimation. Our results demonstrate that strengthening labor cost significantly reduce the stock price crash risk, and this conclusion holds after conducting a series of robustness tests. Heterogeneity analysis indicates that this effect is more pronounced in state-owned enterprises and firms with low financing constraints. Our findings suggest that labor cost/protection generates positive outcomes at the firm-level, thereby promoting stock price stability.

Keywords: Labor protection; Social insurance law; Stock price crash risk (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:55:y:2023:i:pb:s1544612323003434

DOI: 10.1016/j.frl.2023.103971

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