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Labor Protection Laws and Bank Loan Contracting by Azizjon Alimov is a Economics, Econometrics and Finance article available to read on EtoBox.

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This paper examines the impact of labor regulations that restrict firms' flexibility to adjust labor resources on the cost of corporate bank loans. Using withincountry variation in employment protection legislation across 25 countries, I find that increases in employment protection lead to higher loan spreads, tighter nonprice loan contract terms, and more diffuse loan ownership structure. The effects of labor regulations are greater in industries with a higher rate of labor turnover and among borrowers with a higher probability of default. These results suggest that rigidities imposed by labor regulations have a significant impact on firms' cost of capital.I thank an anonymous referee, Dennis W. Carlton (the editor), Alexander Ljungqvist, Sreedhar Bharath, Tom Kirchmaier, Yue Ma, and seminar participants at the City University of Hong Kong and 2013 Asian Finance Association (Jiangxi, China) annual meeting for many helpful comments. I gratefully acknowledge financial support from the Hong Kong Research Grants Council (research grant no. 140011). I am responsible for all remaining errors.

Who reads Labor Protection Laws and Bank Loan Contracting?

Author

Azizjon Alimov

Publisher

University of Chicago Press

Published

2015

Language

EN

Field

Economics, Econometrics and Finance (Social Sciences)