Study evaluates how financing constraints impact workplace safety

A team at The University of Texas Dallas researched how financing constraints change workplace safety, employee welfare, and firm value within the U.S.

The study shows that over 3.5 million workplace injuries happen every year within the U.S., costing an estimated $250 billion.

“A huge part of the labor force has significant exposure to injury risk,” study author Malcolm Wardlaw, an assistant professor of finance and managerial economics in the Naveen Jindal School of Management, said. “For these workers, getting injured can radically impact their overall welfare. Moreover, the costs of these injuries are borne by both the employees and the companies they work for.”

Wardlaw found that injury rates increased along with rising debt and negative cash flow shocks. In addition, firm values plummeted when injury rates rose, and injury rates fell with positive cash flow stocks.

“When you’re having issues in cash flow, you often end up servicing the debt at the expense of softer claims that are more difficult to value or have values that are realized over the long term,” Wardlaw said. “There are costs associated with workplace injuries — it’s harder to find and retain employees, you’re more subject to lawsuits and injuries have a long-term effect on productivity — but on a quarter-to-quarter basis, those debts have to be paid.”

The study is available in the Journal of Finance.