Seminar Series

2024 - 2025

Speaker: Xiaoyun Yu (Shanghai Advanced Institute of Finance)

Title: “Failure To Jettison: The Cost of Labor on the Path to Recovery”.

joint with G. Liao & Z.Zhang (Renmin U of China) and Y. Yu (Ant Financial)

Date: Thursday, 15 May at 12h00 (Paris Time).

Abstract: We study how workforce composition and labor cost affect the recovery of financially distressed firms. Exploiting China’s 2008 Labor Contract Law (LCL) as a laboratory, which increases the cost for a firm to lay off its workers, we show that post LCL, financially distressed firms decelerate the layoff rate of less skilled employees and avoid mass layoffs. The inability to offload low-quality labor is particularly pronounced among distressed firms located in regions with stringent law enforcement, employer-friendly courts, or having more labor unrest. Following an increase in the cost to restructure their workforce, distressed firms with an ex-ante larger share of less skilled employees experience a higher cost of debt financing and lower ROA growth; they speed up assets sales and cut wages to a greater extent. Consequently, these firms take longer to recover, have a significantly lower survival rate, and are more likely to turn into zombie firms. They also suffer from productivity setbacks. The delay in financial recovery exacerbates the departure of highly skilled workers and allows more resources to be sunk into distressed firms. A larger share of distressed firms crowds out resource allocation to non-distressed local firms, who become more financially constrained and whose productivity deteriorates. Our findings identify the mechanism by which the cost of labor can hinder a firm’s ability to emerge from financial distress and highlight an unintended consequence of labor protection regulations. 

Here is a link to the speaker’s and the FEELab website:

https://en.saif.sjtu.edu.cn/faculty-research/yu-xiaoyun

https://sites.google.com/view/feelabtbs/

You are cordially invited to participate in the following seminar of the FEELab, which will take place in Room 727-730, Sebastopol building.

For more information, please contact: Pierre Mella-Barral p.mella-barral@tbs-education.fr or Cam Ly TRAN cam-ly.tran@tbs-education.fr