Pay Transparency and Financial Leverage

65 Pages Posted: 16 Apr 2024

See all articles by Woon Sau Leung

Woon Sau Leung

University of Southampton - Southampton Business School

Vathunyoo Sila

University of Edinburgh

Xuan Tian

Tsinghua University - PBC School of Finance

Date Written: April 8, 2024

Abstract

Exploiting staggered adoptions of pay transparency laws, we find pay transparency increases financial leverage. The effect is more pronounced among firms with greater threats of labor collective bargaining, such as those in Democratic leaning states and in industries with higher union coverage, and lower worker outside options. Labor disputes appear a plausible underlying mechanism through which pay transparency increases firm leverage. Our evidence is consistent with the conjecture that pay transparency induces firms to strategically increase debt level to improve their bargaining position vis-à-vis labor. Our paper sheds new light on the effects of pay transparency on corporate financial policies.

Keywords: Pay Transparency, Financial Leverage, Strategic Bargaining, Labor Dispute.

JEL Classification: G30, G32, K31, J51, J52.

Suggested Citation

Leung, Woon Sau and Sila, Vathunyoo and Tian, Xuan, Pay Transparency and Financial Leverage (April 8, 2024). Available at SSRN: https://ssrn.com/abstract=4785385 or http://dx.doi.org/10.2139/ssrn.4785385

Woon Sau Leung (Contact Author)

University of Southampton - Southampton Business School ( email )

Highfield
University Road
Southampton, SO17 1BJ
United Kingdom

Vathunyoo Sila

University of Edinburgh ( email )

29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom
+447428747109 (Phone)

HOME PAGE: http://https://www.business-school.ed.ac.uk/staff/ben-sila

Xuan Tian

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

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