Did Enhancement Of Employee Protection Affect Corporate Cash Policy And Operating Leverage?

Protecting the legitimate rights and interests of labor is widespread in all economies,and the importance of human capital as the core asset of an enterprise is increasing.Therefore,it is extremely important to study how labor protection measures affect enterprises.This paper links the labor market with the real economy,and introduces the labor adjustment cost transmission mechanism for theoretical analysis and empirical testing.We find that enhanced employee protection measures increase the labor adjustment cost and hence the expected cost of financial distress for labor-intensive companies.Based on this,it is likely that under other conditions,this will likely encourage such companies to increase their cash reserves to reduce the risk of financial distress when employee protection is enhanced.The empirical results of this paper show that after the implementation of China’s "Labor Contract Law",its protection of labor force has been significantly enhanced.The empirical results of this paper mainly include the following points:(1)cash reserves and operating leverage of China’s labor-intensive enterprises have increased significantly;(2)In addition,we also find that for companies with high operating leverage,the implementation of the Law has a significantly greater impact on their cash holdings than for companies with low operating leverage.;(3)In order to further verify the labor adjustment,cost transmission mechanism proposed earlier,we use the event research method to find out the cumulative abnormal returns of the stock market-related industries and their significance,the adoption of the Labor Contract Law and its subsequent amendment decisions did increase labor adjustment costs for labor-intensive firms.Robustness test results shows that other contemporaneous shocks do not seem to drive the main findings.The Law on corporate cash holding levels changes with the severity of the implementation of laws in various regions,and companies in regions with high levels of enforcement of laws are more affected;state-owned enterprises are more affected by the implementation of the law.These series of studies in this thesis have deepened our understanding of the factors that affect corporate cash reserves and their transmission mechanisms.Theoretical and empirical analysis shows that employee protection measures will not only affect the labor market but also affect corporate cash policies,operating leverage and financial distress costs.At the same time,it provides micro-evidence for evaluating the implementation of related policies,and provides a practical basis for China’s labor market reform and the strategic choice of enterprises to respond to change.Finally,based on the findings of this thesis,we suggest that state-owned enterprises,especially those with high labor intensity,can be given greater flexibility in the labor dispatch system and give firms with high labor-intensive industries more flexibility in employment,which can help them more efficiently adjust the labor structure of the company,or consider additional tax and fee reductions to encourage their technological innovation.