 Employment protection and leverage adjustment speed: Evidence from ChinaMingming Li, Yao-Min Chiang and Haiming Liu Research in International Business and Finance, 2023, vol. 64, issue C Abstract: Stricter employment protection may affect capital structure adjustment speed in two ways. First, it may increase the cost of capital and decrease the leverage adjustment speed. Second, it increases financing needs and capital adjustment speed. Using China's 2008 Labor Contract Law as a natural experiment and the PSM-DID methodology, we find that the latter effect dominates the former. Specifically, stricter employment protection increases leverage adjustment speed, and this effect is more pronounced for non-state-owned firms and firms with larger leverage deviations. Furthermore, transmission channel tests show that employment protection increases firms’ substitution of labor with capital, driving up investment and financing needs. Finally, the increased leverage adjustment speed induced by enhanced employment protection is beneficial to firm performance. Keywords: Employment protection; Leverage adjustment; Financing need hypothesis (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:64:y:2023:i:c:s027553192300020x DOI: 10.1016/j.ribaf.2023.101894 Access Statistics for this article Research in International Business and Finance is currently edited by T. Lagoarde Segot More articles in Research in International Business and Finance from Elsevier |
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