The Review of Corporate Finance Studies Vol. 8 No. 2 2019
Employee Inside Debt and Firm Risk-Taking: Evidence from Employee Deposit Programs in Japan
Abstract
Unlike broad-based equity ownership by employees, ownership of company debt by rank-and-file employees has not received much attention. We argue that company debt held by employees in the form of in-company deposits can monitor risk-taking and facilitate risk discovery. Employee deposits have been historically widely used in Japan. For a sample of 2,104 Japanese firms, using an identification strategy that utilizes a new law in 2003 that changed the priority of employee deposits in bankruptcy and led to large-scale withdrawals of employee deposits, we find that employee deposits mitigate firms’ risk-taking behavior and reduce the agency cost of debt. Received November 2, 2018; editorial decision May 1, 2019 by Editor Andrew Ellul.
- DOI
- 10.1093/rcfs/cfz003
- Volume
- 8
- Issue
- 2
- Pages
- 302-347
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref