Nonregular Employment and Payout Policy: Evidence from the Massachusetts Independent Contractor Law

JiHoon Hwang () and Kathleen M. Kahle ()
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JiHoon Hwang: Eller College of Management, University of Arizona, Tucson, Arizona 85721
Kathleen M. Kahle: Eller College of Management, University of Arizona, Tucson, Arizona 85721

Management Science, 2024, vol. 70, issue 9, 6415-6437

Abstract: Compared with regular employees, independent contractors (ICs) offer labor flexibility and cost savings to their employers. Using a difference-in-differences design around the 2004 Massachusetts law that discourages IC usage, we find that this exogenous decrease in IC usage makes treated firms’ earnings more sensitive to changes in sales, increases labor-related expenses, and reduces profitability. Firms subsequently reduce share repurchases. The decrease is more pronounced for firms with high operating leverage and financial constraints. Our results are robust to entropy balancing. We conclude that IC usage affects firms’ operating leverage and profitability, which in turn, influence payout policy.

Keywords: independent contractor; nonregular employment; repurchases; payout policy; operating leverage (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:9:p:6415-6437

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