Essays: labor market and finance

• Autor(a) principal: Vilar, Orlando Laercio de Souza Cavalcante
• Data de Publicação: 2020
• Tipo de documento: Tese
• Idioma: eng
• Título da fonte: Repositório Institucional do FGV (FGV Repositório Digital)
• Texto Completo: https://hdl.handle.net/10438/29492
• topic: Capital structure; Financial leverage; Operating leverage; Cash holdings; Financial constraints; Local labor market; Estrutura de capital; Alavancagem financeira; Alavancagem operacional; Reservas de caixa; Restrição financeira; Mercado de trabalho; Administração de empresas; Planejamento empresarial; Administração financeira; Alavancagem (Finanças)

This dissertation investigates the interconnectedness of the labor market environment and firms’ financial policies. The recent theoretical and empirical literature shows that as a fundamental factor of production labor is a relevant friction to firms, impacting their decisions over debt issuance and cash management. Therefore, I study two specific and particular settings regarding this topic: one delineating the effects of a supply-side shock to the American labor market after the events of September 11th and its effects over manufacturing firms’ financial leverage; while the second explores how the end of the compulsory union tax in Brazil – after the labor law reform in 2017 – has affected firms’ cash holdings. In both essays that comprise this dissertation, I show that the operating-financial leverage channel is the main mechanism that transmits these labor market outcomes to the firms’ mix of external and internal funds. In Essay 1, I show that changes in operating leverage after 2001 resulted in a debt decrease to firms located within states that had a smaller share of volunteering personnel to the workingage population numbers. In addition, firms with higher cost rigidity have reduced their financial leverage ratios to avoid financial distress risk through the management of cost savings. For lower-cost firms, the impact on financial leverage is positive. In sum, I provide evidence of the conundrum between operating and financial leverage, and how they work as substitutes. In Essay 2, the reduction of labor rigidity after the enactment of the labor law reform in Brazil impacted firms’ cash holdings by dampening operating leverage effects. This setting allowed firms to undertake less conservative financial policies by decreasing their cash holdings. Further, I find evidence that selling, general & administrative (SG&A) costs – which are deemed ‘stickier’ – become less sensitive to a shock in sales after the reform, suggesting that the operating-financial leverage channel is indeed the main instrument.