News: Seminari

Seminario di Arnt Verriest

12.10.2017

Employee protection and cash holdings

Seminario di Arnt Verriest, EDHEC Business School

We examine the relation between employee protection legislation and corporate cash holdings. Our intuition rests on the notion that as wages become less elastic in a firm’s production function, precautionary savings increase. We show that the exogenous and staggered passage of legal exceptions to the “at-will” employment doctrine in various U.S. states, led to a significant increase in corporate cash holdings. Our results further show stronger increases in cash holdings for firms with fewer financial constraints, lower capital intensity, higher operating leverage, and higher salary expenses. Finally, we find that increasing firing costs have the strongest impact on cash holdings in volatile industries and when unionization is low.