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Personal Bankruptcy Laws and Corporate Policies

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  • Chen, Yi-Wen
  • Halford, Joseph T.
  • Hsu, Hung-Chia Scott
  • Lin, Chu-Bin

Abstract

In this article we examine whether and how changes in personal bankruptcy laws, viewed as a shock to employees’ expected personal wealth, affect corporate policies. Following a reform in personal bankruptcy laws that limits individuals’ access to bankruptcy protection, firms more affected by this regulation reform increase labor costs, reduce investment, and engage in less risk taking. The effects are stronger when employees have more bargaining power. Furthermore, firms in industries characterized by high unemployment risk reduce leverage. These results support the view that firms choose more conservative policies to mitigate employees’ expected welfare losses.

Suggested Citation

  • Chen, Yi-Wen & Halford, Joseph T. & Hsu, Hung-Chia Scott & Lin, Chu-Bin, 2020. "Personal Bankruptcy Laws and Corporate Policies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(7), pages 2397-2428, November.
    • Handle: RePEc:cup:jfinqa:v:55:y:2020:i:7:p:2397-2428_11
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    Cited by:

    1. Fernández-Rodríguez, Elena & García-Fernández, Roberto & Martínez-Arias, Antonio, 2023. "Institutional determinants of the effective tax rate in G7 and BRIC countries," Economic Systems, Elsevier, vol. 47(2).
    2. György Walter & Jens Valdemar Krenchel, 2021. "The Leniency of Personal Bankruptcy Regulations in the EU Countries," Risks, MDPI, vol. 9(9), pages 1-20, September.

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