Shielding firm value: Employment protection and process innovation

Jan Bena, Hernán Ortiz-Molina and Elena Simintzi

Journal of Financial Economics, 2022, vol. 146, issue 2, 637-664

Abstract: Following state-level legal changes that increase labor dismissal costs, firms increase their innovation in new processes that facilitate the adoption of cost-saving production methods, especially in industries with a large share of labor costs in total costs. Firms with high innovation ability exhibit larger increases in process innovation and capital-labor ratios, an effect driven by both increases in capital investment and decreases in employment. By facilitating the adjustment of the input mix when conditions in input markets change, innovation ability allows firms to mitigate value losses and is a key driver of their performance.

Keywords: Process innovation; Employment protection; Operating leverage (search for similar items in EconPapers)
JEL-codes: G30 J28 O31 O33 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:146:y:2022:i:2:p:637-664

DOI: 10.1016/j.jfineco.2021.10.005

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