Are Leveraged Firms Focused on the Short-Run? Evidence from Health and Safety Programs in U.S. Firms

Abstract

Despite a well-documented profitability, health and safety (H&S) programs remain an uncommon investment among large U.S. companies. This article is the first to demonstrate a negative link between the financial leverage of firms and the implementation of H&S programs. This effect is robust to several empirical specifications and the introduction of various control variables. This finding is particularly relevant in a context of surging healthcare costs in the U.S. and in light of the documented value of H&S programs for U.S. firms. None of the theories explaining the link between leverage and investment provides an explanation for our results. The specificities of H&S programs shed a new light on the leverage/investment debate. Their long-term nature and their strong homogeneity across firms are consistent with the idea that leverage is detrimental to important long-term productivity investments.

Keywords: capital structure, health and safety programs

JEL Classification: G32