Description
Firms reduce investment when facing downward wage rigidity (DWR), the inability or unwillingness to adjust wages downward. I construct DWR measures and exploit staggered state-level changes in minimum wage laws as an exogenous variation in DWR to document this fact. Following a minimum wage increase, firms reduce their investment rate by 1.17 percentage points. Surprisingly, this labor market friction enhances firm value and production efficiency when firms are subject to other frictions causing overinvestment, consistent with the theory of second best. Finally, I identify increased operating leverage and aggravation of debt overhang as mechanisms by which DWR impedes investment.
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Title
- Downward wage rigidity, corporate investment, and firm value
Contributors
- Cho, DuckKi (Author)
- Bharath, Sreedhar (Thesis advisor)
- Hertzel, Michael (Thesis advisor)
- Bessembinder, Hendrik (Committee member)
- Wang, Jiaxu (Committee member)
- Arizona State University (Publisher)
Date Created
The date the item was original created (prior to any relationship with the ASU Digital Repositories.)
2017
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Note
- Partial requirement for: Ph.D., Arizona State University, 2017Note typethesis
- Includes bibliographial references (pages 52-56)Note typebibliography
- Field of study: Business administration
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by DuckKi Cho