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Title: Essays on the interplay between finance and labour
Author: Ghaly, Mohamed
ISNI:       0000 0004 7225 101X
Awarding Body: University of Manchester
Current Institution: University of Manchester
Date of Award: 2015
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This thesis is an effort to advance our knowledge and understanding of the role that labor plays in shaping corporate financial policies and how it is in turn affected by considerations related to firms' financing. I present three essays on the interaction between finance and labor. First, I provide two examples of how labor affects financial decisions, in which I investigate the impacts that commitment to employee welfare and reliance on skilled labor have on cash management policies. Next, I examine the effect of ownership structure on labor investment decisions as an example of how finance affects human capital. In the first essay, I examine the relation between employee welfare practices and corporate cash holdings. Consistent with the predictions of the stakeholder theory, I find firms that are strongly committed to employee welfare, measured by ratings on employee relations, to hold more cash. The effect of employee welfare standards on cash holdings is stronger for firms in human-capital-intensive, competitive, and low turnover industries in which employees are more important to their businesses. The findings highlight the importance of human capital and employee-friendly practices as an overlooked determinant of cash holdings and suggest that managers can use cash to signal their financial health to current and potential employees, thereby increasing their competitiveness in labor markets. The second essay examines whether a firm's dependence on skilled labor affects its cash holdings. Consistent with a precautionary motive to accumulate cash when higher labor adjustment costs slow a firm's labor demand reaction to cash flow shocks, I find robust evidence that companies with higher shares of skilled labor hold more cash. The effect of skilled labor on cash holdings is more pronounced for firms that are financially constrained, attach higher values to their human capital, operate in competitive product markets, and belong to industries characterized by high labor mobility. The findings suggest that labor heterogeneity, and in particular the skill level of workers is an important determinant of corporate cash policies. The results provide managers of firms, particularly those that are financially constrained, with insights on how to minimize their labor adjustment costs and reduce the risk of losing their valuable human capital. In my third essay, I examine whether the presence of long-term institutional investors, who typically have strong monitoring incentives, can help mitigate agency conflicts associated with firms' employment choices. I find that abnormal net hiring, measured as the absolute deviation from net hiring predicted by economic fundamentals, decreases in the presence of institutional investors with longer investment horizons. Firms dominated by long-term shareholders reduce both over-investment (over-hiring and under-firing) and under-investment in labor (under-hiring).The monitoring role of long-term investors is more pronounced for firms facing higher labor adjustment costs. These findings suggest that institutional investors play an important role in firm-level employment decisions.
Supervisor: Stathopoulos, Konstantinos ; Dang, Viet Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: Labor Adjustment Costs ; Institutional Investors ; Implicit Claims ; Cash Holdings ; Human Capital ; Employee Welfare ; Investment Horizon ; Labor Skill ; Monitoring