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The impact of unemployment subsidies on firms- corporate finance choices and credit ratings. An analysis on the effects of firms- size and age
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Resumo(s)
This paper studies the relation between unemployment subsidies,
considered as a proxy for the unemployment risk, and corporate
finance decisions. It is empirically demonstrated that a decrease in
the generosity of unemployment compensations - because of the
lower recipiency rate - is associated with lower debt levels, partly
to mitigate the greater risk of costly layoffs faced by employees.
The reduction in leverage is particularly severe for large and mature
firms. Furthermore, the paper proves the absence of a relation
between changes in unemployment benefits and firms’ default risk,
as their credit ratings and interest coverage ratios remain constant.
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Palavras-chave
Labor economics Unemployment subsidies Capital structure Leverage Credit ratings Default risk U.S. Cyclicality Size Age.