The Effect of Financial Leverage on Workplace Safety
Jonathan B. Cohn
University of Texas at Austin
University of Texas - Dallas
March 5, 2013
This paper uses establishment-level injury data to study the effects of a firm's capital structure on the safety of its workplace. We find that an establishment's injury rate is positively-related to its parent firms' financial leverage, especially when its operating profits are low. Two quasi-natural experiments - one involving a tax law change and the other oil price shocks - suggest that cash constraints impacting a firm's investment in safety-related activities play a role in driving the relationship between leverage and injury rates. Debt overhang also appears to play a role, as injury rates are lower following an increase in creditor control in the form of covenant violations. Finally, we find that employee bargaining power can mitigate the adverse effects of leverage on workplace safety.
Number of Pages in PDF File: 45
Keywords: labor and finance, capital structure, workplace safety, cash constraints, debt overhang, unions
JEL Classification: J28, G32working papers series
Date posted: March 21, 2012 ; Last revised: March 18, 2013
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