Employment Protection and the Provision of Trade Credit

86 Pages Posted: 6 Sep 2023

See all articles by Tongxia Li

Tongxia Li

Hitotsubashi University

Tze Chuan 'Chewie' Ang

Deakin University - Department of Finance; Financial Research Network (FIRN)

Chun Lu

Graduate School of Business Administration, Hitotsubashi University

Date Written: August 31, 2023

Abstract

Improved employment protection may affect corporate trade credit decisions due to increased labor costs. Using the staggered adoption of U.S. state-level Wrongful Discharge Laws as a quasi-natural experiment, we find that suppliers’ provision of trade credit decreases significantly with better labor protection. The trade credit reduction is more pronounced for firms with higher distress risk, financial constraints, and operating leverage. Firms operating in states with lower unionization and in industries with higher labor turnover, and greater product market competition cut their trade credit more. The decrease in trade credit supply also varies with the type of products sold and customer concentration.

Keywords: Employment protection, Trade credit, Labor adjustment cost, Accounts receivables

JEL Classification: G30, G32, G38, J63, K31

Suggested Citation

Li, Tongxia and Ang, Tze Chuan and Lu, Chun, Employment Protection and the Provision of Trade Credit (August 31, 2023). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4558407

Tongxia Li

Hitotsubashi University ( email )

2-1 Naka, Kunitachi
Tokyo 186-8601, Japan
Kunitachi, Tokyo 186-0001
Japan

Tze Chuan Ang (Contact Author)

Deakin University - Department of Finance ( email )

221 Burwood Highway
Burwood, Victoria 3125
Australia
+61 3 9244 6626 (Phone)

HOME PAGE: http://www.deakin.edu.au/profiles/tze-ang

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia,
Brisbane, Queensland 4071
Australia

HOME PAGE: http://www.firn.org.au

Chun Lu

Graduate School of Business Administration, Hitotsubashi University ( email )

2-1 Naka, Kunitachi
Tokyo, 1868601
Japan

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