2013
DOI: 10.1016/j.jfineco.2012.11.006
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Labor unemployment risk and corporate financing decisions

Abstract: This paper presents evidence that firms choose conservative financial policies partly to mitigate workers' exposure to unemployment risk. We exploit changes in state unemployment insurance laws as a source of variation in the costs borne by workers during layoff spells. We find that higher unemployment benefits lead to increased corporate leverage, particularly for labor-intensive and financially constrained firms. We estimate the ex ante, indirect costs of financial distress due to unemployment risk to be abo… Show more

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Cited by 476 publications
(294 citation statements)
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References 82 publications
(90 reference statements)
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“…Following Agrawal and Matsa (2013), we measure the generosity of each state's UI benefits annually using the product of the maximum weekly benefit amount and the maximum benefit duration (in weeks). Although we focus on this measure ("Max Benefit") throughout much of our analysis, the results are robust to a wide range of other measures of benefit generosity, as described in Section IIB.…”
Section: A Regular Benefitsmentioning
confidence: 99%
“…Following Agrawal and Matsa (2013), we measure the generosity of each state's UI benefits annually using the product of the maximum weekly benefit amount and the maximum benefit duration (in weeks). Although we focus on this measure ("Max Benefit") throughout much of our analysis, the results are robust to a wide range of other measures of benefit generosity, as described in Section IIB.…”
Section: A Regular Benefitsmentioning
confidence: 99%
“…For example, the firms' workforce characteristics have been shown to influence capital structure choices, theoretically and empirically (e.g., Berk, Stanton and Zechner (2010), Agrawal and Matsa (2011)), as well as the cost of capital (Eisfeldt and Papanikolaou (forthcoming)). The acquisition of productive labor, not just physical assets, is an important driver of M&A decisions (Ouimet and Zarutskie (2011)).…”
mentioning
confidence: 99%
“…These are defined as the product of the maximal UI benefits and the respective maximal duration, measured in 2002 constant dollars using the Consumer Price Index (as done by Agrawal and Matsa, 2013), standardized by the average wage in the relevant sector, state and year. The data for UI benefits and duration are drawn from the "Significant Provision of State UI Laws" of the U.S. Department of Labor, and the data for average wage by sector, state and year are based on BLS data.…”
Section: Empirical Predictions and Some Evidencementioning
confidence: 99%