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Health Care Costs, Worker Mobility and Firm Leverage: Evidence from State Health Mandates

60 Pages Posted: 14 Jul 2017  

Manpreet Singh

Georgia Institute of Technology

S Lakshmi Naaraayanan

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Date Written: July 13, 2017

Abstract

We study how health insurance-induced 'job-lock' of workers impacts firms' capital structure choices. On the one hand, higher health care costs for firms may induce them to adopt conservative financial policies. On the other hand, it may reduce worker mobility and allow firms to increase financial leverage by lowering financial distress costs. To disentangle these two effects, we use staggered adoption of state-level health mandates, that significantly increase the cost of health insurance borne by firms. We show that following the adoption of high-cost mandates firms significantly increase their corporate leverage. These effects are stronger for firms whose employees value health insurance more, which operate in industries with lower job mobility and in states where employees have less bargaining power. Our results are robust to geographic regression discontinuity design where we focus on firms located in counties adjacent to state borders. Overall, we document that firms benefit from increase in health care costs to the extent employees value associated benefits.

Keywords: Capital Structure, Health benefits, Labour cost, State health mandates

JEL Classification: G32, G38

Suggested Citation

Singh, Manpreet and Naaraayanan, S Lakshmi, Health Care Costs, Worker Mobility and Firm Leverage: Evidence from State Health Mandates (July 13, 2017). Georgia Tech Scheller College of Business Research Paper No. 17-28. Available at SSRN: https://ssrn.com/abstract=3002089

Manpreet Singh (Contact Author)

Georgia Institute of Technology ( email )

800 W Peachtree St NW
Room 4162
Atlanta, GA 30308
United States
+14043855330 (Phone)

HOME PAGE: http://www.manpreets.com

S Lakshmi Naaraayanan

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

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