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Capital market frictions and human capital investment: Evidence from workplace safety around regulation SHO

John (Jianqiu) Bai, Eunju Lee and Chi Zhang

The Financial Review, 2020, vol. 55, issue 2, 339-360

Abstract: This paper examines the effect of capital market frictions on firms’ workplace safety. Using Regulation SHO as a natural experiment, we find a significant increase in work‐related injury rates of pilot firms. The effect is stronger for firms in more competitive industries and with high financial constraints, and weaker for firms whose employees have high negotiating power and with good corporate governance. Further tests suggest that managers’ myopia shifts their focus away from investments in workplace safety when workplace safety is not related to firm performance. Overall, the results highlight how capital market frictions affect firms’ investment in human capital.

Date: 2020
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