Employment protection and investment opportunities

Employment protection and investment opportunities

Claudio Loderer, Urs Waelchli, Jonas Zeller

Series number :

Serial Number: 
460/2016

Date posted :

February 01 2016

Last revised :

February 18 2016
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Keywords

  • employment protection • 
  • innovation • 
  • investment opportunities • 
  • financial flexibility • 
  • operating flexibility
Even though firms? innovation efforts dwindle in reaction to weaker employment protection legislation (EPL), we show that the value of their investment opportunities actually increases. The reason is that weaker EPL discourages innovation efforts only in firms with little comparative advantage at innovation.
At the same time, however, weaker EPL increases the financial and operating flexibility of firms. This flexibility gain can explain why Tobin?s q increases in reaction to weaker EPL.

Authors

Real name: 
Urs Waelchli
Academic Member
Institut für Finanzmanagement, Universität Bern
Real name: 
Jonas Zeller