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Do Financial Factors Affect the Capital-Labour Ratio? Evidence form UK FIrm-Level Data

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This paper investigates the nexus between financial factors and the capital-labour ratio using a rich firm-level data set. It is common in the literature to examine the impact of financial constraints on hiring and firing decisions separately from their impact on decisions related to investment in physical capital. We argue that as long as firms use both inputs in production and there is some substitutability between them, the two decisions need to be jointly analyzed. When we differentiate across firms that are more or less financially constrained, we find that the former group exhibits higher sensitivi¬ties of the capital-labour ratio to firm-specific characteristics, compared to the latter.

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Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2008-02.

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Date of creation: Apr 2008
Date of revision: Apr 2008
Handle: RePEc:lbo:lbowps:2008-02

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Keywords: Financial constraints; Firm-specific characteristics; Capital-Labour ratio.;

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Cited by:
  1. Tsoukas, Serafeim, 2011. "Firm survival and financial development: Evidence from a panel of emerging Asian economies," Journal of Banking & Finance, Elsevier, Elsevier, vol. 35(7), pages 1736-1752, July.
  2. Mizen, Paul & Tsoukas, Serafeim, 2012. "The response of the external finance premium in Asian corporate bond markets to financial characteristics, financial constraints and two financial crises," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(11), pages 3048-3059.
  3. Gerlach, Petra & O'Connell, Brian & O'Toole, Conor, 2013. "SME Credit Constraints and Macroeconomic Effects," Papers, Economic and Social Research Institute (ESRI) WP467, Economic and Social Research Institute (ESRI).

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