Employee protection shocks and corporate cash holdings

We examine the relation between employee protection legislation and corporate cash holdings. Our rationale rests on notion that higher labor adjustment costs increase a firm's operating leverage making firms to adjust their liquidity management by increasing precautionary savings. Consistent with this, we show staggered passage of legal exceptions “at-will” employment doctrine in various U.S. states led an average holdings 7.2%. Cash increases are when unionization rates industry concentration lower, discharge volatility is higher. financial flexibility argument tighter needs, value after pro-labor regulations. Moreover, find especially pronounced for financially constrained firms.