Alternative Work Arrangements, Payout Policy, and Employment: Evidence from Independent Contractor Misclassification Statute

Posted: 21 Nov 2020

See all articles by Ji Hoon Hwang

Ji Hoon Hwang

University of Arizona, Eller College of Management, Department of Finance, Students

Date Written: October 1, 2020

Abstract

Using the 2004 Massachusetts Independent Contractor Law that discourages the use of independent contractors, I find that firms adopt conservative financial policies by reducing payout since companies attempt to reduce financial risk in response to increased operating leverage. I find that the effect is more pronounced in industries with a higher proportion of independent contractors, and in firms with high financial constraints and operating leverage. I also find that the state government’s attempt to improve the mis-classified worker’s status reduces the number of employees at the firm level by 4.4%, highlighting that reclassification does not lead to an increase in the number of employees. The findings imply that heightened operating risk caused by the law may lead to risk-averse financial policies and subdued job creation at the firm level.

Keywords: independent contractor, alternative work arrangements, payout policy, employment

JEL Classification: J21, G32, G35

Suggested Citation

Hwang, Ji Hoon, Alternative Work Arrangements, Payout Policy, and Employment: Evidence from Independent Contractor Misclassification Statute (October 1, 2020). Available at SSRN: https://ssrn.com/abstract=3703363 or http://dx.doi.org/10.2139/ssrn.3703363

Ji Hoon Hwang (Contact Author)

University of Arizona, Eller College of Management, Department of Finance, Students ( email )

McClelland Hall
P.O. Box 210108
Tuscon, AZ 85721
United States

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