Capital Structure and Employment Flexibility
- When?
- Wednesday 10 October 2012, 13.00
- Where?
- 61AP02
- Open to:
- Public, Staff, Students
- Speaker:
- Olga Kuzmina - The New Economic School in Moscow
- Admission information:
- Please RSVP to fbelevents@surrey.ac.uk
- Refreshments:
Refreshments and a sandwich lunch will be available from 13.00
The Finance and Accounting group is pleased to welcome Olga Kuzmina to speak at the University of Surrey.
Biography
Olga Kuzmina is an Assistant Professor of Finance at the New Economic School in Moscow. She received her bachelor degrees from the University of London International Programme and National University Higher School of Economics in Moscow. She holds a PhD in Finance and Economics from Columbia Graduate School of Business. Her research interests include empirical corporate finance, organizational economics and applied microeconometrics.
Abstract
This paper uses a unique panel dataset to establish a causal relationship between the use of flexible contractual arrangements with labor and capital structure of the firm. Using an exogenous inter-temporal variation from government subsidies, I find that hiring more temporary workers leads firms to have more debt. Since temporary workers, unlike permanent ones, can be fired at a much lower cost during their contract duration, or their contracts may be not extended upon expiration, a firm can more easily meet its interest payments and avoid bankruptcy when faced with a negative shock. I interpret this result as evidence of flexible workforce decreasing operating leverage which, in turn, promotes financial leverage.
The economic magnitude of this effect is large. A thought experiment of completely prohibiting an average firm from offering temporary employment contracts would suggest that it should reduce its debt level by 3.5 percentage points, which is about 6% of the average debt level across firms. Given the extent of labor reforms in continental Europe in recent years that touch upon the incentives to use different employment contracts and are aimed at offering more job security to workers, it is important to understand how such policies would affect firms.
