Corporate leverage and employees’ rights in bankruptcy

Andrew Ellul; Marco Pagano

doi:10.1016/j.jfineco.2019.05.002

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Journal of Financial Economics Vol. 133 No. 3 2019

Corporate leverage and employees’ rights in bankruptcy

Andrew Ellul¹; Marco Pagano^2,3

¹ Indiana University Bloomington · ² Centre for Studies in Economics and Finance · ³ University of Naples Federico II

Abstract

Corporate leverage responds differently to employees’ rights in bankruptcy depending on whether it is driven by strategic concerns in wage bargaining or by credit constraints. Using novel data on employees’ rights in bankruptcy, we estimate their impact on leverage, exploiting time-series, cross-country, and firm-level variation in the data. For financially unconstrained firms, results accord with the strategic debt model: leverage increases more in response to rises in corporate property values or profitability if employees have strong seniority in liquidation and weak rights in restructuring. Instead, in financially constrained firms leverage responds less to these shocks if employees have stronger seniority.

DOI: 10.1016/j.jfineco.2019.05.002
Volume: 133
Issue: 3
Pages: 685-707
Language: en
Sources: bibtex:phds-export.bib openalex crossref

Corporate leverage and employees’ rights in bankruptcy

Abstract

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