IPO suspensions and labor employment decisions: Evidence from China

The Chinese regulator occasionally suspends all initial public offerings (IPOs) to maintain stability in the capital markets and facilitate capital market reform. These suspensions temporarily prevent firms that have obtained IPO approval from going public. We hypothesize that this suspension-induced listing delay influences firms’ labor employment decisions. Consistent with this argument, we find that a suspension-induced listing delay is associated with an increase in labor costs, both in terms of total and average employee payments. This positive relationship is more pronounced for human capital-intensive firms and non-state-owned enterprises. We also find that there is an increase in employment and employee turnover for firms facing suspension-induced listing delays. Moreover, IPO suspensions result in lower labor productivity and firm performance. Overall, our results indicate that government policy uncertainty leads firms to incur high labor costs and reduces capital allocation efficiency.