DP12033 Corporate Leverage and Employees' Rights in Bankruptcy
|Author(s):||Andrew Ellul, Marco Pagano|
|Publication Date:||May 2017|
|Keyword(s):||bankruptcy, leverage, seniority, wage bargaining, workers’ rights|
|JEL(s):||G31, G32, G38, H25, H26, M40|
|Programme Areas:||Labour Economics, Financial Economics|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12033|
Corporate leverage responds differently to employees' legal protection in bankruptcy depending on whether leverage is chosen to curtail workers' bargaining power or is driven by credit constraints. Using newly collected cross-country data on employees' rights in corporate bankruptcy, we estimate the impact of such rights on firms' capital structure, applying triple-diff strategies that exploit time-series, cross-country and firm-level variation. The estimates show that leverage increases more substantially in response to rises in corporate property values or in profitability at firms where employees have strong seniority in liquidation and weak rights in restructuring, consistently with the strategic use of leverage.