Temporary Employment Legislation and Capital Structure
Master thesis

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Date
2016Metadata
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- Master of Science [1822]
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