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Unemployment insurance and cash holdings of privately-held firms around the world

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Abstract
Research Question/Issue: This paper studies the relationship between country-level unemployment insurance and cash holdings of privately-held firms. When public unemployment insurance is weak, firms may provide alternative unemployment insurance by committing not to lay off workers in bad times. We hypothesize that one way firms can do so is by holding larger cash balances. Research Findings/Insights: Using a large sample covering 388,940 private firms from 32 countries around the world over the 2007-2014 period, we find a negative relationship between public unemployment insurance and cash holdings. This effect is driven by countries where public unemployment insurance is weak or non-existent. We also find that privately-held firms keep a larger part of their new debt issues as cash when public unemployment insurance is weak. Theoretical/Academic Implications: We contribute to a growing literature on an institutionbased view of comparative corporate governance. We show that national governance factors and, more specifically, public unemployment insurance, which protects employees (an important but relatively ignored stakeholder), influences firm cash holdings in a private firm context. Practitioner/Policy Implications: Our findings have important implications for policy design. Specifically, they suggest that labor market institutions designed to support employees can also indirectly benefit their employers because these institutions allow firms to reduce the opportunity cost related to holding larger cash balances.
Keywords
privately-held firms, cash holdings, unemployment risk, public unemployment insurance

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Citation

Please use this url to cite or link to this publication:

MLA
Deloof, Marc, et al. “Unemployment Insurance and Cash Holdings of Privately-Held Firms around the World.” Corporate Governance: An International Review, Wiley, 2020.
APA
Deloof, M., Du, Y., & Vanacker, T. (2020). Unemployment insurance and cash holdings of privately-held firms around the world. Corporate Governance: An International Review.
Chicago author-date
Deloof, Marc, Yan Du, and Tom Vanacker. 2020. “Unemployment Insurance and Cash Holdings of Privately-Held Firms around the World.” Corporate Governance: An International Review.
Chicago author-date (all authors)
Deloof, Marc, Yan Du, and Tom Vanacker. 2020. “Unemployment Insurance and Cash Holdings of Privately-Held Firms around the World.” Corporate Governance: An International Review.
Vancouver
1.
Deloof M, Du Y, Vanacker T. Unemployment insurance and cash holdings of privately-held firms around the world. Corporate Governance: An International Review. 2020;
IEEE
[1]
M. Deloof, Y. Du, and T. Vanacker, “Unemployment insurance and cash holdings of privately-held firms around the world,” Corporate Governance: An International Review, 2020.
@article{8659764,
  abstract     = {Research Question/Issue: This paper studies the relationship between country-level
unemployment insurance and cash holdings of privately-held firms. When public
unemployment insurance is weak, firms may provide alternative unemployment insurance by
committing not to lay off workers in bad times. We hypothesize that one way firms can do so
is by holding larger cash balances.
Research Findings/Insights: Using a large sample covering 388,940 private firms from 32
countries around the world over the 2007-2014 period, we find a negative relationship between
public unemployment insurance and cash holdings. This effect is driven by countries where
public unemployment insurance is weak or non-existent. We also find that privately-held firms
keep a larger part of their new debt issues as cash when public unemployment insurance is
weak.
Theoretical/Academic Implications: We contribute to a growing literature on an institutionbased
view of comparative corporate governance. We show that national governance factors
and, more specifically, public unemployment insurance, which protects employees (an
important but relatively ignored stakeholder), influences firm cash holdings in a private firm
context.
Practitioner/Policy Implications: Our findings have important implications for policy design.
Specifically, they suggest that labor market institutions designed to support employees can also
indirectly benefit their employers because these institutions allow firms to reduce the
opportunity cost related to holding larger cash balances.},
  author       = {Deloof, Marc and Du, Yan and Vanacker, Tom},
  issn         = {0964-8410},
  journal      = {Corporate Governance: An International Review},
  keywords     = {privately-held firms,cash holdings,unemployment risk,public unemployment insurance},
  language     = {eng},
  pages        = {47},
  publisher    = {Wiley},
  title        = {Unemployment insurance and cash holdings of privately-held firms around the world},
  url          = {http://dx.doi.org/10.1111/corg.12318},
  year         = {2020},
}

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