The bright side of labor protection in emerging markets: The case of firm transparency

Xiaoran Ni and Weikang Zhu

Pacific-Basin Finance Journal, 2018, vol. 50, issue C, 126-143

Abstract: Using a unique regulatory change (the enactment of the Labor Contract Law) in China, we find that the strengthening of labor protection leads to a significant increase in firm transparency. Further analyses indicate that stronger labor protection reduces operating flexibility, which can exert external pressure on firms and exacerbate managerial short-termism problems. To counteract the unfavorable challenge, shareholders re-contract with managers by granting more equity incentives and less perks. This improved compensation structure relieves managers from short-term concerns and incentivizes them to disclose more firm-specific information. Our findings provide new insights on the bright side of labor protection and shed light on how stringent laws can shape the information environment in emerging markets.

Keywords: Labor protection; Firm transparency; Stock price informativeness; Labor contract law (search for similar items in EconPapers)
JEL-codes: G30 G38 J50 M41 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:50:y:2018:i:c:p:126-143

DOI: 10.1016/j.pacfin.2017.06.009

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