The impact of paid maternity leave on corporate financial decisions : Cash holdings and dividend payout ratio

Abstract

The study investigates how paid maternity leave (PML) laws affect corporate financial decisions, using a difference-in-differences approach based on the staggered enactment of the laws across U.S. states. The first essay reveals that the adoption of PML laws significantly reduces corporate cash holdings, especially in labor-intensive firms. Further analysis indicates increased employee productivity post-adoption is associated with declining cash holdings, representing a channel linking the laws to reduced precautionary savings. The second essay shows a positive correlation between PML and the dividend payout ratio. The correlation is particularly pronounced for firms characterized by high labor intensity and significant agency issues. The potential channel of the relationship is improved labor productivity. Overall, the findings provide investors with critical insights into cash holding and dividend payout changes and highlight stakeholder policies’ financial impacts.