The effect of labour protection laws on the relationship between leverage and wages

Ahmet Karpuz, Di Luo, Rongbing Xiao and Huainan Zhao

Journal of Banking & Finance, 2023, vol. 148, issue C

Abstract: Previous research has shown that leverage has a positive effect on wages. Using US state-level labour protection laws as an exogenous shock, we find that the adoption of the law alleviates the effect of leverage on wages. We show that the mitigating effect on the leverage-wage relationship is more pronounced for firms with strong employee bargaining power. Our study highlights the positive role played by labour protection laws in lowering firms’ labour costs and improving their financial flexibility, which complements the literature and advances our understanding of the broad implications of labour protection laws.

Keywords: Labour protection law; Leverage; Employee pay; Employee bargaining power; Capital structure (search for similar items in EconPapers)
JEL-codes: G32 J31 J63 K31 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:148:y:2023:i:c:s0378426622003028

DOI: 10.1016/j.jbankfin.2022.106722

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