Employment Flexibility and Capital Structure: Evidence from a Natural Experiment

• 成果类型: Article
• 署名作者: Kuzmina, Olga
• 署名单位: New Economic School; Centre for Economic Policy Research - UK
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.4560
• 发表日期: 2023
• 页码: 4992-5017
• 关键词: capital structure; -term contracts; operating; Operating leverage

摘要

Using a unique panel data set of manufacturing rms in Spain in 1994-2006, I show that the use of exible (shorter and cheaper-to-re) employment contracts promotes debt nancing. I build the identication strategy on the intertemporal, cross-regional, and cross-gender variation in government subsidies that differentially encouraged rms to hire workers on the less exible contracts. A thought experiment of prohibiting an average rm from hiring workers on exible contracts suggests that such a rm should reduce its debt to-capital ratio by 7%. These ndings suggest that exible employment contracts reduce operating leverage and the xity of rms' costs, increasing nancial leverage. The unique institutional environment allows me to isolate this mechanism from collective bargaining and total labor cost channels. I further show that employment exibility increases rm performance for rms that benet most from operating leverage reductions and depend more on external nancing. The results demonstrate how management can use heterogenous labor contracts to improve rm outcomes.