The Impact of Labor Rights on Equity Market Returns: A Cross-Country Analysis
Contemporary Issues in Financial Economics: Evidence from Emerging Economies
ISBN: 978-1-80117-839-6, eISBN: 978-1-80117-838-9
Publication date: 23 August 2023
Abstract
There is ample evidence that financial market development leads to economic growth. If improving labor rights can be shown to positively influence equity markets, then that, in turn, will lead to economic growth. The finance literature has examined the impact of a broader metric, namely, the Economic Freedom Index, on equity returns worldwide, and the evidence is mixed. This study focuses on one dimension of economic freedom: labor rights. Specifically, the study analyzes the impact of labor rights on national equity market indexes using the Labor Rights Index developed by the Organization for Economic Co-operation and Development (OECD) and the Fraser Institute (FI). Using panel regression analysis for 49 countries (for the OECD Index) and 76 countries (for the FI Index) over the period 1985–2014, the study finds that changes in labor rights have a statistically significant positive impact on equity returns, after controlling for business-cycle effects and time-fixed effects. The study also finds significant differences in the labor–rights–equity returns relationship between developed and less developed economies.
Acknowledgements
Acknowledgements and Disclaimers
This chapter is adapted from a study conducted by the author while a student in the School of Business, University at Albany. The author would like to thank the participants at the World Finance Conference, 2019, for their input.
The research in this chapter and the inferences and opinions put forth in the chapter are solely the views of the author. They do not and are not meant to represent the position or opinions of International School of Management, Germany, nor represent the official position of any of its employees or management team members.
The chapter was previously published in a similar form as a thesis, and no contract was signed that would prohibit republishing.
Citation
Lieb, R. (2023), "The Impact of Labor Rights on Equity Market Returns: A Cross-Country Analysis", Biswas, R. and Michaelides, M. (Ed.) Contemporary Issues in Financial Economics: Evidence from Emerging Economies (Research in Finance, Vol. 37), Emerald Publishing Limited, Leeds, pp. 117-133. https://doi.org/10.1108/S0196-382120230000037007
Publisher
:Emerald Publishing Limited
Copyright © 2023 Emerald Publishing Limited