Capital Market Frictions and Human Capital Investment: Evidence from Workplace Safety around Regulation SHO

Abstract

Using Regulation SHO as natural experiment, we find that work-related injury and illness rates increase significantly at treated firms relative to the control group. The effect is more pronounced for firms in more competitive industries, firms in which labor has low negotiating power with management, and those that are more financially constrained or with poor corporate governance. Further, this effect is not explained by salient firm performance characteristics and is stronger for firms whose stock returns are less sensitive to injury rates. Overall, the results shed light on how capital market frictions impact firms’ investment in workplace safety.

Keywords: Short Selling, Reg SHO, Workplace Safety

JEL Classification: J28, G14, G18