Employee Inside Debt and Firm Risk-Taking: Evidence from Employee Deposit Programs in Japan

Review of Corporate Finance Studies, Forthcoming

60 Pages Posted: 19 May 2014 Last revised: 26 Jun 2019

See all articles by Sudipto Dasgupta

Sudipto Dasgupta

Chinese University of Hong Kong, Lancaster University, and CEPR

Yupeng Lin

National University of Singapore

Takeshi Yamada

Australian National University (ANU)

Zilong Zhang

City University of Hong Kong

Date Written: June 25, 2019

Abstract

Unlike broad-based equity ownership by employees, ownership of company debt by rank-and-file employees has not received much attention. We argue that company debt held by employees in the form of in-company deposits can monitor risk-taking and facilitate risk discovery. Employee deposits have been historically widely used in Japan. For a sample of 2,104 Japanese firms, using an identification strategy that utilizes a new law in 2003 that changed the priority of employee deposits in bankruptcy and led to large-scale withdrawals of employee deposits, we find that employee deposits mitigate firms’ risk-taking behavior and reduce the agency cost of debt.

Keywords: inside debt, risk-taking, employee deposits, agency costs of debt

JEL Classification: G30, G32, J01

Suggested Citation

Dasgupta, Sudipto and Lin, Yupeng and Yamada, Takeshi and Zhang, Zilong, Employee Inside Debt and Firm Risk-Taking: Evidence from Employee Deposit Programs in Japan (June 25, 2019). Review of Corporate Finance Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2438504 or http://dx.doi.org/10.2139/ssrn.2438504

Sudipto Dasgupta (Contact Author)

Chinese University of Hong Kong, Lancaster University, and CEPR ( email )

CUHK, Cheng Yu Tung Building, Room 1224
Shatin, NT
Hong Kong
Hong Kong

Yupeng Lin

National University of Singapore ( email )

15 Kent ridge drive
Singapore
Singapore

HOME PAGE: http://sites.google.com/site/scottlinyupeng/

Takeshi Yamada

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Zilong Zhang

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

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