Discussion Paper Details

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Title: Corporate Leverage and Employees' Rights in Bankruptcy

Author(s): Andrew Ellul and Marco Pagano

Publication Date: May 2017

Keyword(s): bankruptcy, leverage, seniority, wage bargaining and workers’ rights

Programme Area(s): Financial Economics and Labour Economics

Abstract: 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.

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Bibliographic Reference

Ellul, A and Pagano, M. 2017. 'Corporate Leverage and Employees' Rights in Bankruptcy'. London, Centre for Economic Policy Research.