Date of Award

Fall 12-2018

Degree Type

Dissertation-Restricted

Degree Name

Ph.D.

Degree Program

Financial Economics

Department

Economics and Finance

Major Professor

Dr. Tarun Mukherjee

Second Advisor

Dr. Sudha Krishnaswami

Third Advisor

Dr. Wei Wang

Fourth Advisor

Dr. Duygu Zirek

Abstract

A debate exists regarding the effect of labor protection laws on labor costs. Whether labor protection laws increase or decrease labor costs has implications for risk exposure of affected firms. If the labor costs go up, all else the same, the firm’s breakeven point goes up. Facing increased business risk, the firm must resort to strategies that inhibit the risk exposure, especially if the higher labor costs cannot be transferred, without adverse consequences, to consumers. The strategies include reigning in, if at all possible, operating leverage and financial leverage. Conversely, if the labor costs decrease, a firm’s business risk declines, and the firm has options to increase its operating leverage and/or financial leverage, lower the product price, or do nothing. By examining the Chinese firms’ reactions to the 2007 labor protection laws, we draw conclusions about laws’ directional impact on labor costs. We find that Chinese firms attempt to reduce business risk by lessening labor intensity, and labor-intensive firms are able to reduce the labor intensity at a significantly higher rate than capital-intensive firms. Neither group is able to significantly reduce asset tangibility. We also find that all firms significantly reduce their financial leverages. Consequently, firms’ investments, as measured by sales growth, decline in the post-reform period. These results are consistent with the cost of labor increasing as a result of the stricter labor protection laws.

Rights

The University of New Orleans and its agents retain the non-exclusive license to archive and make accessible this dissertation or thesis in whole or in part in all forms of media, now or hereafter known. The author retains all other ownership rights to the copyright of the thesis or dissertation.

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