“Financial Leverage and Employee Death: Evidence from China’s Coalmining Industry” by Huihua Nie
Renmin University of China
Cranfield University School of Management
In this paper, we examine a unique panel dataset of 25,285 firm-year observations for China's coalmining industry. We find that a firm's leverage significantly determines its coalmining fatality: A 10% increase in the debt ratio leads, on average, to a 3% increase in the number of death tolls. We show that death rates decrease in response to exogenous positive cash flow shocks, especially for high leveraged firms; and leverage reduces safety investment which in turn leads to more fatalities. Both evidences suggest that cash constraints limit a firm's ability to meet/raise safety standard and hence drive the relation between leverage and employee death. Our study highlights the importance of corporate finance in help solving social and institutional problems.