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Labor protection and financing decisions of firms: The case of China

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  • Huang, Yuxin
  • Mukherjee, Tarun
  • Wang, Wei

Abstract

Increased labor costs enhance the human capital costs of bankruptcy and operating leverage, inducing a firm to reduce its financial leverage. Serfling (2016), among others, examines and finds support for the hypothesis. Using a sample of Chinese firms affected by 2008 stricter labor laws, we find evidence to support our hypothesis that non-SOEs, facing higher firing costs than their SOE (State-owned enterprises) counterparts, decrease their financial leverage significantly more than SOEs. Our experiment avoids some econometric shortcomings that creep into the Serfling study.

Suggested Citation

  • Huang, Yuxin & Mukherjee, Tarun & Wang, Wei, 2024. "Labor protection and financing decisions of firms: The case of China," International Review of Economics & Finance, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:reveco:v:94:y:2024:i:c:s1059056024003885
    DOI: 10.1016/j.iref.2024.103396
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