Do labor mobility restrictions affect debt maturity?

Mong Shan Ee, He Huang and Mingying Cheng

Journal of Financial Stability, 2023, vol. 66, issue C

Abstract: Prior literature finds that staggered state-level adoption of the Inevitable Disclosure Doctrine (IDD) significantly constrains labor mobility. Using the IDD as an exogenous shock to labor mobility, we find that firms headquartered in states that adopt the IDD gravitate towards issuing short-term debt for external debt financing. We examine three mechanisms—default risk, information asymmetry, and agency cost mitigation—through which labor mobility restrictions affect debt maturity. Our results provide support for the information asymmetry mechanism, which suggests that firms are more inclined to use short-term debt when their information environment deteriorates. We find that in the wake of IDD adoption, firms tend to utilize short-term debt only in corporate bond markets and their debt maturity profiles become more concentrated.

Keywords: Labor mobility restrictions; Debt maturity; Inevitable disclosure doctrine (search for similar items in EconPapers)
JEL-codes: G11 J20 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:66:y:2023:i:c:s1572308923000219

DOI: 10.1016/j.jfs.2023.101121

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