Corporate leverage and employees’ rights in bankruptcy

Andrew Ellul and Marco Pagano

Journal of Financial Economics, 2019, vol. 133, issue 3, 685-707

Abstract: Corporate leverage responds differently to employees’ rights in bankruptcy depending on whether it is driven by strategic concerns in wage bargaining or by credit constraints. Using novel data on employees’ rights in bankruptcy, we estimate their impact on leverage, exploiting time-series, cross-country, and firm-level variation in the data. For financially unconstrained firms, results accord with the strategic debt model: leverage increases more in response to rises in corporate property values or profitability if employees have strong seniority in liquidation and weak rights in restructuring. Instead, in financially constrained firms leverage responds less to these shocks if employees have stronger seniority.

Keywords: Workers’ rights; Bankruptcy; Seniority; Leverage; Wage bargaining (search for similar items in EconPapers)
JEL-codes: G31 G32 G38 H25 H26 M40 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (12)

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Related works:
Working Paper: Corporate Leverage and Employees’ Rights in Bankruptcy (2019)
Working Paper: Corporate Leverage and Employees’ Rights in Bankruptcy (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:133:y:2019:i:3:p:685-707

DOI: 10.1016/j.jfineco.2019.05.002

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