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Temporary Employment Legislation and Capital Structure

Knutsen-Øy, Vetle; Christensen, Herman K.
Master thesis
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http://hdl.handle.net/11250/2442660
Issue date
2016
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Abstract
In this paper, we examine the effect of changes in temporary employment legislation on

leverage for Norwegian firms in the period 1997-2013. Adopting a difference-indifferences

research design, in which we use labor intensity as an indicator of treatment,

we find robust evidence that firms decrease their use of leverage following more

stringent temporary employment legislation. Our explanation of these findings is that

stringent temporary employment legislation makes labor cost more rigid in nature,

which in turn increases financial distress cost and the likelihood of underinvestment,

each of which are associated with reductions in leverage. Lastly, we find that small

firms reduce their leverage ratios by more in response to more stringent temporary

employment legislation, which can be explained by a greater sensitivity to increasing

financial distress cost.
Description
Masteroppgave(MSc) in Master of Science in Finance - Handelshøyskolen BI, 2016
Publisher
BI Norwegian Business School

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