Unemployment Risk and Firm Leverage

Seminar abstract

Employers tend to choose conservative capital structure policies to insulate workers against salient unemployment risk that arises from potential restructuring activities. This paper studies the adoption of mandated layoff advanced notice requirements (MN), which exogenously decreases employees’ subsequent joblessness after dismissal, to investigate the impact of workforce unemployment risk on firms’ capital structures. MN reduces the human costs of dismissing workers, which decreases firms’ indirect bankruptcy costs by sharing planned restructuring information with affected workers in advance and allowing them to search for new jobs or to obtain necessary training before being displaced. We show that MN results in around a 1% increase in leverage. The positive effect is stronger for 1) firms operating in industries that require more industry-specific skills; 2) firms that are less transparent; and 3) firms operating in competitive labour markets. Collectively, our findings demonstrate that not only the risk of layoff but also the subsequent employability of firms’ workers have important implications in determining firms’ optimal leverage.

How to attend this seminar

We welcome you to join us at our Colchester Campus in room EBS.2.46 on Wednesday 7 December at 2pm.

If you are unable to make it in person, this seminar will be available to attend online. Please contact Dr Sarkisyan for the online details.

This seminar is free to attend with no need to register in advance.

Speaker bio

Dr Lani Chunyu

Lani Chunyu joined Essex Business School in July 2022 as a Lecturer in Finance. She is also an honorary research Fellow at Bayes Merger and Acquisition Research Centre (MARC). She did her PhD at Bayes Business School and earned her MSc from Imperial College and BSc from Lancaster University. During her PhD, she visited Imperial College as a visiting research scholar. Lani’s main research interests are in the field of empirical corporate finance including labour and finance, law and finance, M&A, and ESG. Her work has been included in various top international conferences, including SFS Cavalcade Asia-Pacific, CICF and AFA.