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Title: Employment Protection, Investment, and Firm Growth

Citation Type: Miscellaneous

Publication Year: 2015

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Abstract: We use the adoption of U.S. state-level labor protection laws to study the causal effect of employment protection on corporate investment and growth. We find that, following the adoption of these laws, capital expenditures decrease and investment rates become less sensitive to changes in investment opportunities. Further, when firms do invest, these projects tend to have higher expected rates of return. These findings are consistent with theories in which greater employment protection discourages investment by making projects more irreversible. Last, we document that lower investment rates following the adoption of these laws are also associated with lower sales growth rates. Overall, our findings imply that greater employment protection can have a significant effect on corporate investment decisions and growth.

Url: http://www.fmaconferences.org/Orlando/Papers/EmployeeFiringCostsandCorporateInvestment_FMA.pdf

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Authors: Fairhurst, Douglas; Serfling, Matthew

Publisher: Washington State University

Data Collections: IPUMS USA, IPUMS CPS

Topics: Labor Force and Occupational Structure, Other

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