Essays on corporate finance: the impacts of labor protection on corporate policies

This thesis consists of three essays about the role of labor protection in corporate finance. The first empirical work studies labor protection and the leverage-employee pay relation. The literature documents a relation between financial leverage and employee pay, in which employees demand a high wage to compensate for the high unemployment risk caused by firms’ high leverage. This paper investigates how an exogenous labor protection law affects the above relation. I show that the adoption of the law alleviates firms’ pressure from raising wages, given the improvement of job security brought by the law; and financially constrained or distressed firms particularly benefited from the law. My results suggest that all else equal, labor protection law helps firms control their leverage related labor costs via improving the job security of employees. [Continues.]