Improving Bargaining Power or Putting Safety First? Ownership Structure and the Effect of Labor Market Regulation on Leverage

68 Pages Posted: 5 Jun 2018 Last revised: 13 Sep 2023

See all articles by Marina Kononova

Marina Kononova

University of Marburg - School of Business & Economics

Marc Steffen Rapp

University of Marburg - School of Business & Economics; University of Marburg - Marburg Centre for Institutional Economics (MACIE)

Daniel A. Rettl

University of Georgia - Department of Banking and Finance

Iuliia Udoieva

University of Marburg - School of Business & Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2023

Abstract

Exploiting intertemporal variation in employment regulation, we study the role of ownership structure in the relationship between labor market rigidity and firm financial leverage. Arguing that employment protection increases operating leverage and that the corresponding risk considerations are particularly important for undiversified shareholders, we hypothesize that firms with concentrated ownership react with relatively more conservative capital structure choices. Examining listed firms in 28 OECD countries over a 20-year period provides supporting evidence. The effect, which does not appear to be due to pre-treatment differences, spurious correlation, or reverse causality, is more pronounced in the case of strategic blockholders and labor-intensive industries.

Keywords: Financial leverage, ownership structure, labor market regulation, labor power, financial flexibility

JEL Classification: G32, G33, J31, K31

Suggested Citation

Kononova, Marina and Rapp, Marc Steffen and Rettl, Daniel A. and Udoieva, Iuliia, Improving Bargaining Power or Putting Safety First? Ownership Structure and the Effect of Labor Market Regulation on Leverage (September 1, 2023). Available at SSRN: https://ssrn.com/abstract=3190560 or http://dx.doi.org/10.2139/ssrn.3190560

Marina Kononova

University of Marburg - School of Business & Economics ( email )

Universitätsstrasse 24
D-35032 Marburg, D-35032
Germany

Marc Steffen Rapp (Contact Author)

University of Marburg - School of Business & Economics ( email )

Am Plan 2
Marburg, D-35037
Germany

University of Marburg - Marburg Centre for Institutional Economics (MACIE) ( email )

Am Plan
Marburg, 35032
Germany

Daniel A. Rettl

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

Iuliia Udoieva

University of Marburg - School of Business & Economics ( email )

Am Plan 2
Marburg, D-35037
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
92
Abstract Views
848
Rank
341,143
PlumX Metrics