Temporary Workers and Cash Holdings

61 Pages Posted: 1 Oct 2020 Last revised: 8 Sep 2021

See all articles by Jaehoon Hahn

Jaehoon Hahn

Yonsei University - School of Business

Sandy Klasa

University of Arizona - Department of Finance

Hyuksoon Lim

University of Arizona - Department of Finance

S. Katie Moon

University of Colorado at Boulder - Leeds School of Business

Date Written: November 2, 2020

Abstract

We investigate the effect of firm reliance on temporary workers on cash holdings by exploiting the quasi-natural experiment created by a temporary worker protection law in South Korea which requires firms to change a worker’s status to full-time once the worker has been employed at the firm for two years. Although the law passage increases the rigidity of labor costs, firms that relied more on temporary workers prior to the law strategically lower their cash holdings afterward. This occurs because the law passage raises the likelihood that workers not belonging to a union become union members. The negative effect of the law on cash holdings is driven by firms for whom lower cash holdings provide more credible evidence that a firm is unable to concede to union demands and by firms with lower ex-ante operating leverage. The stock prices of unionized firms which rely more on temporary workers react negatively to the law passage and stock market participants value cash holdings less highly for these firms. Lastly, we show that low cash holdings and using subcontracting are complement mechanisms that firms in South Korea use to decrease union bargaining power.

Keywords: cash holdings, liquidity policy, temporary workers, labor unions

JEL Classification: G31, G32, J51, J52, J53

Suggested Citation

Hahn, Jaehoon and Klasa, Sandy and Lim, Hyuksoon and Moon, Katie, Temporary Workers and Cash Holdings (November 2, 2020). Available at SSRN: https://ssrn.com/abstract=3675086 or http://dx.doi.org/10.2139/ssrn.3675086

Jaehoon Hahn

Yonsei University - School of Business ( email )

50 Yonsei-ro, Seodaemun-gu
Seoul, 120-749
Korea, Republic of (South Korea)

Sandy Klasa (Contact Author)

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-8761 (Phone)

Hyuksoon Lim

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-336-5252 (Phone)

Katie Moon

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

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