Labor protection and financing decisions of firms: The case of China

Yuxin Huang, Tarun Mukherjee and Wei Wang

International Review of Economics & Finance, 2024, vol. 94, issue C

Abstract: Increased labor costs enhance the human capital costs of bankruptcy and operating leverage, inducing a firm to reduce its financial leverage. Serfling (2016), among others, examines and finds support for the hypothesis. Using a sample of Chinese firms affected by 2008 stricter labor laws, we find evidence to support our hypothesis that non-SOEs, facing higher firing costs than their SOE (State-owned enterprises) counterparts, decrease their financial leverage significantly more than SOEs. Our experiment avoids some econometric shortcomings that creep into the Serfling study.

Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:94:y:2024:i:c:s1059056024003885

DOI: 10.1016/j.iref.2024.103396

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