Workplace Injuries and the Agency Cost of Debt

This paper examines how rm nancial policy impacts investment in workplace safety. The agency theory of capital structure hypothesizes that the use of corporate debt can have a signi cant impact on the rm's nonnancial stakeholders such as its employees. Using plant-level data on employee injuries from the Survey of Occupational Injuries and Illnesses, this paper tests whether rm leverage and nancial condition impact future injury rates at the rm. Controlling for a number of factors (including year × industry and establishment xed e ects), we nd evidence that rms with higher nancial leverage invest less in workplace safety than rms with low leverage. Using an exogenous change in tax law surrounding the repatriation of foreign pro ts as a natural experiment, we show that this investment is directly related to available cash ows. We also nd that the relationship between injury rates and leverage is stronger for establishments located in more union-intensive states, suggesting that leverage attenuates the e ects of employee bargaining power on workplace safety.