“Shielding firm value: Employment protection and process innovation” by Dr. Elena Simintzi
Dr. Elena Simintzi
Assistant Professor in Finance
Kenan-Flagler Business School
University of North Carolina
We show that an increase in labor dismissal costs leads firms to increase their process innovation, especially in industries with a large share of labor costs. Firms with a greater stock of knowledge capital adjust their production methods and mitigate the effects of increased labor rigidity. They exhibit larger increases in process innovation, larger decreases in employment and employment growth rates, and larger increases in capital intensity. These adjustments allow them to increase labor productivity, operating performance, and ultimately to avoid value losses.