Employment Protection and Investment Opportunities

47 Pages Posted: 3 Feb 2016 Last revised: 30 Jun 2017

See all articles by Claudio F. Loderer

Claudio F. Loderer

University of Berne - Institute for Financial Management; European Corporate Governance Institute (ECGI)

Urs Waelchli

Rochester-Bern Executive Programs; University of Rochester - Simon Business School

Jonas Zeller

University of Berne – Institute for Financial Management

Date Written: June 23, 2017

Abstract

We examine the impact of employment protection legislation (EPL) on individual firms’ growth opportunities, as measured by Tobin’s q. On the one hand, by increasing job security, EPL spurs innovation effort. Yet that boost only occurs in firms with little comparative advantage at original innovation. The impact on q is therefore negligible. On the other hand, EPL increases restructuring costs and thereby reduces the firms’ operating and financial flexibility. EPL-induced loss of flexibility has a strong negative effect on q. The evidence shows that scaling down EPL has stimulated growth opportunities internationally.

Keywords: employment protection, innovation, investment opportunities, financial flexibility, operating flexibility

JEL Classification: G30, L20

Suggested Citation

Loderer, Claudio F. and Waelchli, Urs and Zeller, Jonas, Employment Protection and Investment Opportunities (June 23, 2017). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 460/2016, Swiss Finance Institute Research Paper No. 16-07, Available at SSRN: https://ssrn.com/abstract=2726588 or http://dx.doi.org/10.2139/ssrn.2726588

Claudio F. Loderer

University of Berne - Institute for Financial Management ( email )

Engehaldenstrasse 4
Bern, CH-3012
Switzerland
+41 31 631 37 75 (Phone)
+41 31 631 84 21 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Urs Waelchli (Contact Author)

Rochester-Bern Executive Programs ( email )

Engehaldenstrasse 4
Bern, 3012
Switzerland

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

Jonas Zeller

University of Berne – Institute for Financial Management ( email )

Engehaldenstrasse 4
Bern, 3012
Switzerland

HOME PAGE: http://www.ifm.unibe.ch

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
219
Abstract Views
1,900
rank
177,923
PlumX Metrics