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Alternative Work Arrangements and Cost of Equity: Evidence from a Quasi-Natural Experiment

  • Atsushi Chino (a1)


I examine whether firms’ use of alternative work arrangements, particularly temporary agency workers, affects their cost of equity. Exploiting a major labor-market deregulation in Japan that induced manufacturing firms to increase their employment of temporary agency workers, I show that the cost of equity decreased in manufacturing firms, relative to nonmanufacturing firms, after the deregulation. Further analysis using variations within manufacturing firms provides corroborating evidence. The rigidity in labor expenses and the cost of debt also decreased in manufacturing firms. Overall, alternative work arrangements increase the flexibility in labor costs, leading to lower operating leverage and cost of capital.


Corresponding author

Chino, (corresponding author),


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I am especially grateful to Xiaoji Lin (the referee), whose comments substantially improved the article. I also appreciate helpful comments from David Denis, Yuichi Fukuta, Takato Hiraki (discussant), Paul Malatesta (the editor), Dev Mishra (discussant), Hiroshi Morita, Hidenori Takahashi, Mengying Wang (discussant), and Kazuo Yamada; seminar participants at the Nagoya University, the Ritsumeikan University, and the Yokohama National University; and conference participants at the 2016 Nippon Finance Association Meeting, the 2018 Asian Finance Association Meeting, and the 2018 Financial Management Association Meeting. I acknowledge financial support from the Japan Society for the Promotion of Science (JSPS KAKENHI Grant JP17K03821). All errors are my own.



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Alternative Work Arrangements and Cost of Equity: Evidence from a Quasi-Natural Experiment

  • Atsushi Chino (a1)


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