Serfling (2016) examines how the increase in firing costs impacts the capital structure decisions of firms and hypothesizes that higher firing costs of labor lead to a decline in a firm’s financial leverage use by directly increasing its distress costs and indirectly lifting its operating...

Empirical evidence overwhelmingly supports a negative relation between the strictness of labor protection laws and a firm’s financial leverage. Given the unique economic and financial environments in China, we examine if the same relationship applies to Chinese firms after the enactment of the...