In today’s global economy, it’s common for U.S. companies to run factories, partner with suppliers or hire employees overseas. But what happens when labor laws in those countries change?
New research co-authored by Giorgo Sertsios, Sheldon B. Lubar Associate Professor of Finance, explores that question and reveals how international labor policies shape U.S. firms’ business decisions.
Published in the Journal of Financial and Quantitative Analysis, the study examines how U.S. multinational firms adjust their operating strategies when labor regulations in foreign countries become more restrictive. For example, when it becomes harder or more expensive to lay off workers.
Rather than pulling out of these countries entirely, Dr. Sertsios and his co-author (Katie Moon, University of Colorado – Boulder) found that firms often change how they do business. “Instead of shutting down operations, companies tend to shift away from integrated models—like owning and managing a factory—and instead work through local partners,” he says.
These “arm’s-length relationships,” particularly joint ventures, give companies more flexibility. In a joint venture, the U.S. firm and a local business share ownership and management. “This structure lets the local firm—who knows the labor laws better—take the lead on employment issues, while the U.S. firm retains partial control,” Dr. Sertsios says.
The strategy is practical. It allows companies to adapt quickly to regulatory change without losing their global presence. And it’s not just theory. Data from more than 4,000 U.S. firms with operations in over 100 foreign countries operations confirmed this finding.
However, the research also found that not all firms can make this shift. Companies with limited financial flexibility often struggle to change their business model. As a result, these financially constrained firms see a measurable slowdown in sales growth when labor regulations abroad tighten. That’s a finding with real-world implications.
“If you’re an investor, employee, or policymaker, this study helps you understand how global labor rules influence corporate strategies,” says Dr. Sertsios. “It also highlights the importance of being organizationally nimble and financially prepared for change.”
In fact, the study suggests that a one-standard-deviation increase in labor regulation across a firm’s international operations could reduce sales growth by over 10% for companies that can’t adapt due to financial constraints.
At a time when global policies are shifting faster than ever, this research sheds light on how U.S. businesses stay competitive abroad and why resilience depends not just on where you operate, but how you operate.
“Global labor laws aren’t just about local workers,” Dr. Sertsios says. “They’re about shaping the future of global business.”
| Research@Lubar Faculty scholarship in the Lubar College of Business spans the business fields and beyond through both theoretical and applied research that is published in leading journals. Here are some of our faculty’s most recent publications: |
| Predicting Reward-based Crowdfunding Success with Multimodal Data: A Theory-guided Approach Information & Management Authors: Liqian Bao, Gang Chen, Zongxi Liu, Shuaiyong Xiao, and Huimin Zhao. |
| Provoking Sustainability: The Evolving Role of Management Educators Journal of Management Education Author: Joan Shapiro Beigh. |
| Venture capital exit after venture IPO Strategic Entrepreneurship Journal Authors: Yong Li, Tailan Chi, Sai Lan and Qing Wang. |
| How Do Foreign Labor Regulations Affect Firms’ Operating Strategies Journal of Financial and Quantitative Analysis Authors: Katie Moon and Giorgo Sertsios. |
| Redaction as Cross-Regulatory Disclosure Avoidance Journal of Accounting Research Authors: Ioannis Floros, Shane Johnson and Wanjia Zhao. |
| Information Absorption in Stocks with Short-selling Constraints Journal of Financial Research Authors: Ioannis Floros, Ajai Singh and Katsushi Suzuki. |
| Click here to see more faculty research |