Labor Laws and Innovation

Acharya, Viral V.; Baghai, Ramin; Subramanian, Krishnamurthy

doi:10.1086/674106

Cited by 265 publications

(69 citation statements)

References 31 publications

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“…Furthermore, the finding that anti-takeover provisions reduce the effectiveness of equity-based compensation in promoting innovation does not necessarily suggest that all failure protection mechanisms are detrimental to innovation. For example, Acharya and Subramanian (2009) show that debtor-friendly bankruptcy laws encourage firm-level innovation and Acharya et al (2013) find that stringent labour laws restricting the dismissal of employees lead to more innovation. Future research should focus on whether combining long-term incentives with protection mechanisms other than anti-takeover provisions spurs innovation.…”

Section: Discussionmentioning

confidence: 99%

CEO Incentives, Takeover Protection and Corporate Innovation

Mazouz

Zhao

2018

British J of Management

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This study examines the effects of CEO equity‐based compensation and anti‐takeover provisions on corporate innovation. Using a large sample of US firms over the period 1996–2014, we find that long‐term incentives have a stronger influence on innovation when combined with takeover threats. We also show that equity‐based compensation is more likely to spur innovation for small firms and firms in industries with high product market competition and innovation pressure. However, this effect is somewhat weaker in the presence of anti‐takeover provisions, suggesting that takeover protection encourages managerial shirking even when external competition is high. Finally, in addition to the existing evidence on the valuation effect of CEO equity‐based compensation, we identify innovation as an important channel through which managerial incentives can enhance firm value. Our results have potential implications for shareholders, managers and policymakers.

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Section: Discussionmentioning

confidence: 99%

CEO Incentives, Takeover Protection and Corporate Innovation

Mazouz

Zhao

2018

British J of Management

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“…We want to emphasize that our article looks at a firm's decision to invest in risky or safe technologies. In a paper considering the effort of workers in creating new knowledge,Acharya et al (2013) argue that EPL may serve as a commitment device to induce workers to take more risk. They present evidence that countries with high EPL have more patenting.…”

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confidence: 99%

Employment Protection, Technology Choice, and Worker Allocation

Bartelsman

Gautier

Wind

2016

Int Economic Review

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We show empirically that high‐risk sectors, which contribute strongly to aggregate productivity growth, are relatively small and have relatively low productivity growth in countries with strict employment protection legislation (EPL). To understand these findings, we develop a two‐sector matching model where firms endogenously choose between a safe technology and a risky technology. For firms that have chosen the risky technology, EPL raises the costs of shedding workers in case they receive a low productivity draw. According to our calibrated model, high‐EPL countries benefit less from the arrival of new risky technologies than low‐EPL countries. Parameters estimated through reduced‐form regressions of employment and productivity on exit costs, riskiness, and in particular their interaction are qualitatively similar for actual cross‐country data and simulated model data. Our model is consistent with the slowdown in productivity in the European Union relative to the United States since the mid‐1990s.

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“…Kalenkoski and Lacombe (2006) report that right-to-work laws, which weaken labor rights, increase manufacturing employment, but Eren and Ozbeklik (2016) cast doubt on these results. Acharya, Baghai, and Subramanian (2013) find that strong labor rights can have a positive effect on firms' innovation, which is an important driver of economic growth (Solow, 1957). Using a regression discontinuity design that addresses causality, Bradley et al (2016) show that unionization actually impedes firm innovation.…”

Section: Related Literature and Hypothesismentioning

confidence: 99%

Labor Rights, Venture Capital, and Firm Performance

Xing¹,

Howe

Anderson³

et al. 2016

Financial Management

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We investigate the role of labor unions in the performance of venture capital (VC)‐backed firms. Using a large sample of initial public offering firms from 1983 to 2013, we find that VC‐backed firms in highly unionized industries have lower Tobin's Q and are less likely to survive. This effect is robust to endogeneity concerns and to controlling for industry and firm characteristics. The findings suggest that strong labor rights impede innovative firms’ performance and survival, thereby adversely affecting innovation, economic growth, and employment.

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Labor Laws and Innovation

Cited by 265 publications

References 31 publications

CEO Incentives, Takeover Protection and Corporate Innovation

CEO Incentives, Takeover Protection and Corporate Innovation

Employment Protection, Technology Choice, and Worker Allocation

Labor Rights, Venture Capital, and Firm Performance

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