Employee protection shocks and corporate cash holdings

Christof Beuselinck, Garen Markarian and Arnt Verriest
Additional contact information
Christof Beuselinck: LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique
Garen Markarian: UNIL - Université de Lausanne = University of Lausanne
Arnt Verriest: KU Leuven - Catholic University of Leuven = Katholieke Universiteit Leuven

Post-Print from HAL

Abstract: We examine the relation between employee protection legislation and corporate cash holdings. Our rationale rests on the notion that higher labor adjustment costs increase a firm's operating leverage making firms to adjust their liquidity management by increasing precautionary savings. Consistent with this, we show that the staggered passage of legal exceptions to the "at-will" employment doctrine in various U.S. states led to an average increase in cash holdings by 7.2%. Cash increases are higher when unionization rates and industry concentration are lower, and when industry discharge rates and volatility is higher. Consistent with the financial flexibility argument of tighter employment protection increasing corporate cash needs, the value of cash increases after the passage of pro-labor regulations. Moreover, we find that the increase in the value of cash is especially pronounced for financially constrained firms.

Date: 2021-08
Note: View the original document on HAL open archive server: https://hal.science/hal-03597869
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in Journal of Corporate Finance, 2021, 69, pp.102027. ⟨10.1016/j.jcorpfin.2021.102027⟩

Downloads: (external link)
https://hal.science/hal-03597869/document (application/pdf)

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: https://EconPapers.repec.org/RePEc:hal:journl:hal-03597869

DOI: 10.1016/j.jcorpfin.2021.102027

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().