Labor Protection,Labor Intensity And Capital Structure

With the rapid development of China's economy after the reform and opening up policy,while we pursue efficiency,it has also produced a series of social problems that are detrimental to fairness.Problems such as unequal pay,gender discrimination and casual employee dismissal have aroused heated debates in the society.All sectors of society began to call on the government to enhance the protection of the right and interest of workers,so the government introduced laws to protect workers' right.The "Labor Contract Law" formally implemented in 2008 is the second comprehensive and thorough labor law in China since the 1995 “Labor Law”.However,the implementation of this law will not only increase the degree of labor protection,but also have a corresponding impact on company operation,corporate governance,and even the economic growth of the society.This paper builds a dual difference model by selecting data from the Shanghai-Shenzhen A-share listed company from 2003 to 2013,using mixed OLS and fixed effect models to explore the impact of the implementation of the Labor Contract Law on the capital structure of the company.This research finds that the implementation of the 2008 Labor Contract Law has led to a significant reduction in the debt level of labor intensive companies.Besides,this reducing effect is more significant in labor-intensive enterprises which are state-owned enterprises or located in regions where the law environment is better.The impact mechanism is that the implementation of the "Labor Contract Law" increases the company's dismissal costs,which in turn increases its risk of bankruptcy.As a result,the company reduces the use of debt and thus reduce the risk exposure.The significance of this article lies in: 1.The previous literature mainly focuses on the impact of the Labor Contract Law on company operation,investment level,loan contract and few literature focus on its impact on capital structure.This article supplements insufficient literature in the field.2.This article finds that the "Labor Contract Law" lowers the labor-intensive corporate company's debt level.The implementation of this law can greatly encourage enterprises to pay attention to employee benefits and strengthen the protection of employees' interest.The increase in dismissal costs can promote enterprises to effectively reach their optimal capital structure and avoid a overdue high leverage and finally contribute to the steady development of the whole economy.