EconPapers    
Economics at your fingertips  
 

Labor unemployment risk and corporate financing decisions

Ashwini Agrawal and David A. Matsa

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper presents evidence that firms choose conservative financial policies partly to mitigate workers' exposure to unemployment risk. We exploit changes in state unemployment insurance laws as a source of variation in the costs borne by workers during layoff spells. We find that higher unemployment benefits lead to increased corporate leverage, particularly for labor-intensive and financially constrained firms. We estimate the ex ante, indirect costs of financial distress due to unemployment risk to be about 60 basis points of firm value for a typical BBB-rated firm. The findings suggest that labor market frictions have a significant impact on corporate financing decisions.

Keywords: capital structure; financial distress; unemployed risk; compensating wage differential (search for similar items in EconPapers)
JEL-codes: G32 G33 J31 J65 (search for similar items in EconPapers)
Date: 2013-05-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (167)

Published in Journal of Financial Economics, 1, May, 2013, 108(2), pp. 449-470. ISSN: 0304-405X

Downloads: (external link)
http://eprints.lse.ac.uk/69608/ Open access version. (application/pdf)

Related works:
Journal Article: Labor unemployment risk and corporate financing decisions (2013) Downloads
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: https://EconPapers.repec.org/RePEc:ehl:lserod:69608

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().

 
Page updated 2024-10-17
Handle: RePEc:ehl:lserod:69608