Employment Protection and Corporate Cash Holdings: Evidence from China's Labor Contract Law

Cui, Chenyu; John, Kose; Pang, Jiaren; Wu, Haibin

doi:10.2139/ssrn.3093646

Cited by 9 publications

(17 citation statements)

References 37 publications

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“…In columns ( 3) and ( 4), the magnitudes are similarly large for low labor-intensive firms, but none of the estimates is statistically significant. Our findings contrast the results of Cui et al (2018), who compare the changes in cash holdings of high labor-intensive and low labor-intensive firms before and after enactment of the LC Law. They find that high labor intensity leads to a relative increase in cash holdings after introduction of the LC Law.…”

Section: Collective Bargaining and Corporate Cash Holdingscontrasting

confidence: 99%

“…In contrast, Cui et al (2018) show that labor-intensive firms in China significantly increased their cash holdings after China passed its Labor Contract Law (LC Law). This law significantly raised the employment protection in China, but Cui et al (2018) point out that it does not allow collective bargaining. They found that as the law increased the labor costs of companies, the companies increased their cash holdings.…”

Section: Labor and Corporate Cashmentioning

confidence: 99%

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Collective bargaining power and corporate cash policy

Ahmad

Kowalewski

2021

International Review of Law and Economics

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This paper provides novel evidence on the role of labor unions in firms' corporate cash policy. Examining the unionization rates of firms across 29 countries for the period 2004-2015, we show that firms respond to an increase in unionization rate by decreasing their corporate cash holdings. The reported effect is symmetric, in that firms respond to increases (decreases) in unionization rate by decreasing (increasing) their cash buffers. These results are consistent with the bargaining hypothesis, namely, that firms strategically decrease their cash level to counter the rise in employees' bargaining power due to increased unionization. These findings are robust to different unionization variable constructions, alternative dependent variable definitions, controlling for potentially correlated time-variant firm characteristics, saturation of a dense set of fixed effects, and endogeneity concerns. Additionally, the negative effect of unionization on cash holdings is more pronounced in labor-intensive, large, high-growth, highprofitability, and low labor productive firms. The countries' quality of institutions intensifies the documented relationship.

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Section: Collective Bargaining and Corporate Cash Holdingscontrasting

confidence: 99%

Section: Labor and Corporate Cashmentioning

confidence: 99%

Collective bargaining power and corporate cash policy

Ahmad

Kowalewski

2021

International Review of Law and Economics

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“…In contemporaneous studies related to ours,Cui et al (2018) andBeuselinck et al (2018) examine the impacts of labor reforms in China and the U.S., respectively, on firms' cash holdings. Their results lend further support to our findings.8 A volume of research has investigated the impacts of labor market institutions-such as minimum wages, labor union, and EPLs-on economic performance.…”

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confidence: 99%

Employment protection laws and corporate cash holdings

Karpuz

Kim²,

Ozkan³

2020

Journal of Banking & Finance

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We study how employment protection laws (EPLs) affect corporate cash-holding decision. By exploiting within-country changes in EPLs across 20 OECD countries as a source of variation in labor adjustment costs, we show that following an increase in the stringency of EPLs, firms' cash holdings increase significantly. This relationship is stronger for firms with high labor turnover, no multinational presence, or financial constraints, indicating that labor adjustment cost raising distress risk is the mechanism in play. Cash buffers created by firms faced with stricter EPLs help them mitigate the underinvestment problem in subsequent episodes of industry-wide distress. Consistent with this precautionary motive, the market's valuation of excess cash is positively associated with the EPL strictness. We further demonstrate that the response of cash policy to changes in EPLs is distinct from that of debt policy or investment policy. Our evidence highlights the role of interaction between labormarket and financial frictions in determining the level and the value of corporate cash.

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“…Therefore, to eliminate the effect of the split-share reform, we exclude observations in year 2005 and 2006 and re-estimate the baseline regression in Column (5). In Column (6), we consider the effect of the Labor Contract Law that carries out in 2008, as Cui et al (2018) argue that labor protection laws significantly labor-intensive firms' cash holdings. Following Ni and Zhu (2017) and Cui et al (2018), we include an interaction term of labor intensity (Labor) and an indicator variable (Post08) of law enforcement and obtain positive and significant coefficient, that is consistent with Cui et al (2018).…”

Section: Robustness Checksmentioning

confidence: 99%

Share Pledging and Firm Cash Holdings: Evidence from Chinese A-share Listed Firms

Xu¹

2021

AFA

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This paper examines the relation between share pledging and cash holdings of Chinese A-share listed-firms. We find that during the years 2005 through 2015, the level of share pledging is negatively associated with cash holdings. We establish causality through a variety of econometric techniques, including a difference-in-differences approach based on a regulatory change that permits security companies to lend money to borrowers pledging their shares as collaterals. In addition, we find that the main effect is more prominent for financial constrained firms, and share pledging is associated with lower cash/investment-cash flow sensitivities and more cash dividend payouts. Overall, our findings indicate that share pledging can alleviate financial constraints of listed firms and reduce their tendencies of holding cash for precautionary motives.

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Employment Protection and Corporate Cash Holdings: Evidence from China's Labor Contract Law

Cited by 9 publications

References 37 publications

Collective bargaining power and corporate cash policy

Collective bargaining power and corporate cash policy

Employment protection laws and corporate cash holdings

Share Pledging and Firm Cash Holdings: Evidence from Chinese A-share Listed Firms

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