The Impact Of Labor Protection On Financial Distress Firms' Operation And Growth

It's been almost 10 years since China released its Labor Contract Law.With the downturn of China's economy growth and implement of supply-side reform,the debate on the outcome of the law becomes contentious again.By applying a DID approach to Chinse listed firms from 1999 to 2012,this thesis examines the economic outcomes of Labor Contract Law,focusing on its impact on financial distress firms layoff decision,labor cost,performance growth and capital structure.I find after the Labor Contract Law was taken into effect,having to comply to particular dismiss conditions and procedures,layoff scale of distress firms is much lower than before.The average labor cost during financial distress period becomes higher.I further find firms performance during financial distress period have been further damaged after the implementation of the law.It also takes more time for distress firm to recover its performance.What's more,implementation of the Labor Contract Law is associated with a reduction in leverage.It's worth noting that not all the firms are negatively affected by the law.I find that in the provinces which maintain good compliance to the labor regulations both before and after the law and thus didn't experience much increase in labor protection,the negative impact from the law on the firms is not significant.Firms with low labor intensity have lower labor input,thus are also not affected by the law.Due to the social target to support employment,better compliance to labor regulations before the law and stronger ability to absorb increased cost,state owed firms are less affected than private firms.Finally,according the findings in this thesis,some suggestions are proposed.