Firms’ Liquidity Assets and Workers’ Claims

Primary stakeholders for a firm include shareholders, banks, other creditors, and employees (workers). This study pays special attention to the role of employees, which has rarely been analyzed in an explicit form in the field of corporate finance. We show that the presence of workers’ claims can have great influence on firms’ financial operations, particularly on accumulation of liquidity assets. In general, workers’ claims tend to be paid before other claims even when firms face with liquidity shortages. Thus, in an economy where workers’ claims are given priority, companies may fail to raise sufficient funds due to their excessive burden to pay workers’ claims. To forestall such fund shortages, firms may accumulate liquidity assets in advance. Liquidity assets, though far less profitable, can help cover unexpected fund shortages. This study finds that firms tend to accumulate more liquidity assets preemptively in line with growth in workers’ claims. This finding indicates that the presence of workers’ claims is an important factor behind an increase in liquidity assets of firms and that labor-intensive firms with greater workers’ claims tend to accumulate more liquidity assets.