The effect of labour protection laws on the relationship between leverage and wages

TY - JOUR

T1 - The effect of labour protection laws on the relationship between leverage and wages

AU - Karpuz, Ahmet

AU - Luo, Di

AU - Xiao, Rongbing

AU - Zhao, Huainan

N1 - Publisher Copyright: © 2022 Elsevier B.V.

PY - 2023/3

Y1 - 2023/3

N2 - Previous research has shown that leverage has a positive effect on wages. Using US state-level labour protection laws as an exogenous shock, we find that the adoption of the law alleviates the effect of leverage on wages. We show that the mitigating effect on the leverage-wage relationship is more pronounced for firms with strong employee bargaining power. Our study highlights the positive role played by labour protection laws in lowering firms’ labour costs and improving their financial flexibility, which complements the literature and advances our understanding of the broad implications of labour protection laws.

AB - Previous research has shown that leverage has a positive effect on wages. Using US state-level labour protection laws as an exogenous shock, we find that the adoption of the law alleviates the effect of leverage on wages. We show that the mitigating effect on the leverage-wage relationship is more pronounced for firms with strong employee bargaining power. Our study highlights the positive role played by labour protection laws in lowering firms’ labour costs and improving their financial flexibility, which complements the literature and advances our understanding of the broad implications of labour protection laws.

KW - Capital structure

KW - Employee bargaining power

KW - Employee pay

KW - Labour protection law

KW - Leverage

UR - https://www.scopus.com/pages/publications/85142707837

U2 - 10.1016/j.jbankfin.2022.106722

DO - 10.1016/j.jbankfin.2022.106722

M3 - Article

SN - 0378-4266

VL - 148

JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

M1 - 106722

ER -