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Employment adjustment and financing constraints - A theoretical and empirical analysis at the micro level

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Author Info
Smolny, Werner
Winker, Peter (Institut für Volkswirtschaft und Statistik (IVS))

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Abstract

Firms may face financing constraints as a result of rational behaviour of potential lenders due to asymmetric information. In this article, a theoretical model of employment adjustment is developed to derive hypotheses on the short-run impact of financing constraints on employment at the firm level. A unique firm panel data set for German manufacturing us used to assess the empirical evidence for this model. The data comprise high frecuency data on employment adjustment and explicit statements on the existence of financing constraints. The estimation results reveal that financing constraints reduce employment and increase employment changes.

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Paper provided by Institut für Volkswirtschaft und Statistik (IVS), University of Mannheim in its series IVS discussion paper series with number 573.

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Handle: RePEc:mea:ivswpa:573

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Postal: Institut für Volkswirtschaft und Statistik, L7, 3-5, Room 408, University of Mannheim, 68131 Mannheim
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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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  1. Winker, Peter, 1999. " Causes and Effects of Financing Constraints at the Firm Level," Small Business Economics, Springer, vol. 12(2), pages 169-81, March. [Downloadable!] (restricted)
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  4. Funke, Michael, et al, 1998. " The Employment-Financing Nexus: Evidence from a Panel of West German Firms," Small Business Economics, Springer, vol. 11(3), pages 225-35, November. [Downloadable!] (restricted)
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  6. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March. [Downloadable!] (restricted)
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  8. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November. [Downloadable!] (restricted)
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  9. Sharpe, Steven A, 1994. "Financial Market Imperfections, Firm Leverage, and the Cyclicality of Employment," American Economic Review, American Economic Association, vol. 84(4), pages 1060-74, September. [Downloadable!] (restricted)
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  10. Cohen, Wesley M. & Levin, Richard C., 1989. "Empirical studies of innovation and market structure," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 18, pages 1059-1107 Elsevier. [Downloadable!] (restricted)
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  12. Daniel S. Hamermesh & Gerard A. Pfann, 1996. "Adjustment Costs in Factor Demand," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1264-1292, September. [Downloadable!] (restricted)
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  13. Blanchard, Olivier Jean & Diamond, Peter, 1992. "The Flow Approach to Labor Markets," American Economic Review, American Economic Association, vol. 82(2), pages 354-59, May. [Downloadable!] (restricted)
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  14. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. [Downloadable!] (restricted)
  15. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February. [Downloadable!] (restricted)
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  16. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  17. Faroque, Akhter & Ton-That, T, 1995. "Financing Constraints and Firm Heterogeneity in Investment Behaviour: An Application of Non-nested Tests," Applied Economics, Taylor and Francis Journals, vol. 27(3), pages 317-26, March.
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