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Do Financial Factors Affect The Capital-Labour Ratio: Evidence From UK Firm-Level Data

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  • Marina-Eliza Spaliara

Abstract

This paper analyses how firms’ capital-labour ratio is affected by cash flow, leverage, and collateral, and how this effect differs at firms more and less likely to face financing constraints using a rich UK 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 analysed. When we differentiate across firms that are more or less financially constrained, we find that the former group exhibits higher sensitivities of the capital-labour ratio to firm-specific characteristics compared to the latter.

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Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 09/04.

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Handle: RePEc:not:notcfc:09/04

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

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Cited by:
  1. Serafeim Tsoukas, 2012. "Firm Survival and Financial Development: Evidence from a Panel of Emerging Asian Economies," Working Papers 142012, Hong Kong Institute for Monetary Research.
  2. Gerlach, Petra & O'Connell, Brian & O'Toole, Conor, 2013. "SME Credit Constraints and Macroeconomic Effects," Papers WP467, Economic and Social Research Institute (ESRI).
  3. Paul Mizen & Serafeim Tsoukas, 2012. "The response of the external finance premium in Asian corporate bond markets to financial characteristics, financial constraints and two financial crises," Working Papers 2012_08, Business School - Economics, University of Glasgow.

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