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' 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.

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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.