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Refinancing Constraints and Labor Hiring: The Role of Financial Reporting Quality

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Title: Refinancing Constraints and Labor Hiring: The Role of Financial Reporting Quality
Authors: Jung, Boochun
Lee, Woo-Jong
Weber, David
Yang, Daniel
Keywords: labor
financial reporting quality
debt maturity
refinancing risk
Issue Date: 31 Aug 2017
Abstract: Recent studies highlight the adverse effect of financing frictions on corporate employment. In this paper, we hypothesize and find that high quality financial reporting mitigates the negative effect of refinancing constraints on firms’ labor hiring, where refinancing constraints are identified by significant levels of maturing long-term debt. We further find that financial reporting quality facilitates firms’ hiring activities by mitigating the adverse effect of refinancing constraints on new debt issuance. In addition, we show that the mitigating role of financial reporting quality in the negative relation between refinancing constraints and corporate employment decisions is more pronounced for financially constrained firms and for labor-intense firms. Overall, our study contributes new evidence on the role of high quality financial reporting in facilitating firms’ abilities to maintain and expand their labor forces, particularly when facing significant refinancing constraints.
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Appears in Collections:12 Financial: Labor Unions / Debt Financing / Political Connections / Information Risk (FAR4)

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