Cookies?
Library Header Image
LSE Research Online LSE Library Services

Labor unemployment risk and corporate financing decisions

Agrawal, Ashwini K. and Matsa, David A. (2013) Labor unemployment risk and corporate financing decisions. Journal of Financial Economics, 108 (2). pp. 449-470. ISSN 0304-405X

[img]
Preview
PDF - Accepted Version
Download (1MB) | Preview
Identification Number: 10.1016/j.jfineco.2012.11.006

Abstract

This paper presents evidence that firms choose conservative financial policies partly to mitigate workers' exposure to unemployment risk. We exploit changes in state unemployment insurance laws as a source of variation in the costs borne by workers during layoff spells. We find that higher unemployment benefits lead to increased corporate leverage, particularly for labor-intensive and financially constrained firms. We estimate the ex ante, indirect costs of financial distress due to unemployment risk to be about 60 basis points of firm value for a typical BBB-rated firm. The findings suggest that labor market frictions have a significant impact on corporate financing decisions.

Item Type: Article
Official URL: https://www.journals.elsevier.com/journal-of-finan...
Additional Information: © 2012 Elsevier B.V.
Divisions: Finance
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
G - Financial Economics > G3 - Corporate Finance and Governance > G33 - Bankruptcy; Liquidation
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc.
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J65 - Unemployment Insurance; Severance Pay; Plant Closings
Sets: Departments > Finance
Collections > Economists Online
Date Deposited: 01 Mar 2017 15:33
Last Modified: 20 Feb 2019 10:44
URI: http://eprints.lse.ac.uk/id/eprint/69608

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics