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Title: Firing Costs and Capital Structure Decisions

Citation Type: Journal Article

Publication Year: 2016

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Abstract: I exploit the adoption of state-level labor protection laws as an exogenous increase in employee firing costs to examine how the costs associated with discharging workers affect capital structure decisions. I find that firms reduce debt ratios following the adoption of these laws, with this result stronger for firms that experience larger increases in firing costs. I also document that, following the adoption of these laws, a firms degree of operating leverage rises, earnings variability increases, and employment becomes more rigid. Overall, these results are consistent with higher firing costs crowding out financial leverage via increasing financial distress costs.

Url: http://onlinelibrary.wiley.com/doi/10.1111/jofi.12403/pdf

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Authors: Serfling, Matthew

Periodical (Full): Journal of Finance

Issue: 5

Volume: 71

Pages: 2239-2286

Data Collections: IPUMS USA, IPUMS CPS

Topics: Labor Force and Occupational Structure

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