Wrongful Discharge Laws and Trade Receivables

57 Pages Posted: 20 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: October 25, 2021

Abstract

We use the staggered adoption of U.S. state-level Wrongful Discharge Laws as a quasi-natural experiment to examine how employment protection affects corporate trade credit decisions. 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. Overall, our results suggest that increased labor costs following greater employment protection manifest as financial frictions that limit trade credit financing.

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, Wrongful Discharge Laws and Trade Receivables (October 25, 2021). Available at SSRN: https://ssrn.com/abstract=4558451 or http://dx.doi.org/10.2139/ssrn.4558451

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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