Economics at your fingertips  

How does labor protection influence corporate risk-taking? Evidence from China

Jiaoliang Jiang and Yulin Chen

Pacific-Basin Finance Journal, 2021, vol. 68, issue C

Abstract: Considering the enforcement of China's Labor Contract Law as an exogenous event, this paper studies the relationship between labor protection and corporate risk-taking. We document a significant negative effect of labor protection on firms' risk choices. The effect is robust after considering several events, including the global financial crisis. After the law was implemented, firms tend to reduce leverage and intangible assets and increase cash holdings. We propose two potential channels for such an effect, reducing firms' operating flexibility and tightening their financial constraints. We also find that the negative impact is more pronounced for firms of lower governance quality. On the cross-section, state ownership and regional and cultural variations also influence the effect of labor protection on risk-taking. Our study sheds light on how government intervention (in addition to corporate law) shapes corporate policies, thus expanding and supplementing the existing literature.

Keywords: Labor protection; The labor contract law; Corporate risk-taking (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.pacfin.2021.101572

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

Page updated 2022-01-04
Handle: RePEc:eee:pacfin:v:68:y:2021:i:c:s0927538x21000792