Employment Protection and Payout Policy

File pdf 544KB

This paper examines the relationship between employment protection legislation (EPL) and corporate payouts. Employees are corporate claimants who compete with shareholders to extract economic rents generated by the firm, so management is influenced by workforce power via the EPL framework in setting its corporate payout policy. For a large international sample 21 OECD countries for the period 1986-2013, we find that a one standard deviation increase in labor protection leads to a 5.5% (13.8%) lower dividend (total) payout. Consistent with the flexibility hypothesis, we find that EPL impacts payouts more in firms which are more resource-constrained, such as labor intensive firms and in firms with higher operating leverage.

Author(s):

M. Farooq Ahmad    
IÉSEG School of Management
France

Christof Beuselinck    
IÉSEG School of Management
France

Helen Bollaert    
Université Côte d'Azur – SKEMA
France