Document Type

Article

Language

eng

Publication Date

9-2018

Publisher

Elsevier

Source Publication

Journal of Banking & Finance

Source ISSN

0378-4266

Abstract

This paper examines the impact of changes in job security on corporate innovation in 20 non-U.S. OECD countries. Using a difference-in-differences approach, we provide firm-level evidence that the enhancement of labor protection has a negative impact on innovation. We then discuss possible channels and find that employee-friendly labor reforms induce inventor shirking and a distortion in labor flow. Further investigation reveals that the negative relation is more pronounced in (1) firms that heavily rely on external financing, (2) firms that have high R&D intensity, (3) manufacturing industries, and (4) civil-law countries. Our micro-level evidence indicates that enhanced employment protection impedes corporate innovation.

Comments

Accepted version. Journal of Banking & Finance, Vol. 94 (September 2018): 1-15. DOI. © 2018 Elsevier. Used with permission.

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