Employee lawsuits and capital structure

Abstract

We examine the effect of litigation on corporate capital structure by using a unique, hand-collected dataset of 30,841 employee disputes (after initial court hearings) between 2000 and 2015. We find that employee lawsuits increase firms’ leverage ratios, and firms with frequent employee allegations maintain high leverage ratios. The positive relationship between employee allegations and leverage also exists when we use other workplace-related violations, inspections, and complaints. Overall, our findings highlight the importance of employee treatment in the workplace environment.