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Are there Financial Constraints for Firms Investing in Skilled Employees?

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Author Info
Martinsson, Gustav () (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

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Abstract

This paper explores how financial constraints affect intangible investment for knowledge intensive and less capital intensive firms. In this paper, a knowledge intensive firm implies a firm supplying knowledge intensive services which requires the firm to hire highly educated employees. In economics investment is defined as the act of incurring an immediate cost in the expectation of future reward, which also fits to the hiring of skilled employees. Drawing advantage of unique firm-level data comprising all Swedish knowledge intensive consulting firms I conclude that the accessibility to adequate collateral significantly affects the relationship between employment and internal funds at the firm level. The accessibility of adequate collateral is more important in an economic downturn than in an expansion and more important for highly knowledge intensive consulting firms. In this paper I make a novel attempt to incorporate knowledge intensive services firms into the financial constraints literature.

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Publisher Info
Paper provided by Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies in its series Working Paper Series in Economics and Institutions of Innovation with number 169.

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Length: 30 pages
Date of creation: 28 Jan 2009
Date of revision:
Handle: RePEc:hhs:cesisp:0169

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Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
Phone: +46 8 790 95 63
Web page: http://www.infra.kth.se/cesis/
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Related research
Keywords: Incomplete markets; asymmetric information; knowledge intensive business services; economic development;

Find related papers by JEL classification:
D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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  6. Martinsson, Gustav, 2008. "Firm Collateral and the Cyclicality of Knowledge Intensity," Working Paper Series in Economics and Institutions of Innovation 134, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies. [Downloadable!]
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