Worker Mobility and Firm Leverage: Evidence from State Health Mandates

75 Pages Posted: 9 May 2018  

Manpreet Singh

Georgia Institute of Technology

S Lakshmi Naaraayanan

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

Multiple version iconThere are 2 versions of this paper

Date Written: May 8, 2018

Abstract

We study how changes in intra-firm bargaining through mandated health insurance provision affects financing decisions of firms. We use staggered adoption of state health mandates which significantly reduced worker mobility through the provision of better health insurance coverage by firms to their employees. The resulting worker ‘job-lock’ allow firms to increase financial leverage by lowering operating costs. Consistent with this, we show that following the adoption of high-cost mandates, job turnover among workers reduces significantly, specifically for workers with employer-sponsored health insurance. Further, we find stronger effects among firms that significantly benefit more from this job-lock and subsequently respond by increasing their debt ratios. These effects are stronger for a) firms with small labor pool, b) financially constrained firms and c) firms that operate in industries with higher job mobility. Our results are robust to geographic regression discontinuity design where we focus on firms located in counties adjacent to state borders. Overall, our results are consistent with greater operational flexibility allowing firms to raise financial leverage through an increase in intra-firm bargaining power.

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

JEL Classification: G32, G38

Suggested Citation

Singh, Manpreet and Naaraayanan, S Lakshmi, Worker Mobility and Firm Leverage: Evidence from State Health Mandates (May 8, 2018). Georgia Tech Scheller College of Business Research Paper No. 17-28. Available at SSRN: https://ssrn.com/abstract=3002089 or http://dx.doi.org/10.2139/ssrn.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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