Does protecting the employment of older workers affect firm value? We investigate this question by leveraging a labor-market reform in Japan that mandated firms to retain older employees beyond the statutory retirement age if those employees wished to continue working. An event study analysis reveals that firms with higher exposure to the reform experienced lower short-run abnormal stock returns around the announcement date. Long-run difference-in-differences estimates provide supporting evidence. In affected firms, average wages rose following the reform, but worker productivity remained unchanged. We also find that the number of patent applications declined in the affected firms. These findings suggest that mandatory employment protection for older workers—when not accompanied by productivity gains—can negatively impact firm value.

While previous literature documents weak effects of unionization on payout policy on average, we find that this average relationship hides significant heterogeneous effects of unionization on payouts across firms that depend on firm profitability. The effect of unionization on payouts is negative for low-profitability firms but positive for high-profitability firms. We posit that labor unions (i) increase operating risk, which negatively affects payouts, but (ii) increase potential for rent extraction from unions, which could induce shareholders to demand positive payouts. Higher profitability mitigates the negative effect while strengthening the positive effect, making the relation between unionization and payouts less negative or more positive. We provide evidence consistent with both the negative and positive effects of unionization on payouts. Our empirical design mitigates endogeneity concerns. Further, an instrumental variable analysis and a cross-sectional test using right-to-work laws confirm that endogeneity is unlikely to drive our results.