Bank of Lithuania
December 10

Presenter: Marc Steffen Rapp (Philipps-Universität Marburg).

Exploiting intertemporal variation in employment regulation, we study the role of ownership structure in the relationship between labor market rigidity and firms’ financial leverage. Arguing that employment protection increases operating leverage and that corresponding risk considerations are particularly important for undiversified shareholders, we hypothesize that firms with concentrated ownership react with relatively more conservative capital structure choice. Examining listed firms in 29 OECD counties over a 20-year period provides supporting evidence. The effect, which does not appear to be due to pre-treatment differences, spurious correlation, or reverse causality, is more pronounced in case of strategic blockholders and labor-intensive industries.

Last update: 10-01-2022