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How Do Foreign Labor Regulations Affect Firms’ Operating Strategies?
Published online by Cambridge University Press: 02 January 2024
Abstract
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We examine how changes in foreign labor regulations affect U.S. multinationals’ operating strategies. We show that firms with integrated operations in countries where labor regulations become tighter tend to establish arm’s-length relations with local business partners in that nation. The substitution between integrated and arm’s-length operations is stronger toward joint ventures than suppliers and weaker in the presence of financial constraints. Our findings are consistent with the idea that when firms find it harder to terminate their workers in integrated operations, they change to an operating model where it is easier to replace or discontinue business partners instead of employees.
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This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.- Copyright
- © The Author(s), 2024. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington
Footnotes
We thank an anonymous referee, John Bai (discussant), Paul Beaumont (discussant), Elizabeth Berger (discussant), Mara Faccio (the editor), Andrey Golubov, Kristine Hankins, Jack He, Borja Larrain, Daniel Metzger (discussant), Samuel Piotrowski (discussant), Yue Qiu (discussant), Shrihari Santosh, Elena Simintzi, Prabhava Upadrashta (discussant), Liu Yang (discussant), Alminas Zaldonas, and Xingtan Zhang for helpful comments and suggestions. We also thank participants of the 2019 UAndes Corporate Finance Conference, the 2020 European Finance Association Conference (EFA), the 2020 Finance, Organizations and Markets Conference (FOM), the 2021 Swiss Society for Financial Research Meeting (SGF), the 2021 Eastern Finance Association Conference (EFA), the 2022 Midwest Finance Association (MFA), the 2022 Financial Management Association Conference (FMA), the 2022 SFS Cavalcade Conference, and seminar participants at the University of Colorado Boulder, the University of Georgia, and the University of Kentucky. We thank Augusto Orellana for excellent research assistance. Any remaining errors are ours alone.
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Moon and Sertsios supplementary material
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