Corporate Financial Leverage in Canadian Manufacturing: Consequences for Employment and Inventories
AbstractThis paper investigates the link between financial structure and employment growth, and the link between financial structure and inventory growth, among incorporated Canadian manufacturers from 1988 to 1997. It finds that financially vulnerable firms - smaller firms and those with higher leverage - shed nearly 10% more labour than financially healthier firms for a given drop in product demand. The influence was larger during the recession of 1990 to 1992 indicating that higher financial vulnerability, reflected in high leverage, may have worsened during that period. The influence was also greater in sectors that experienced larger cyclical fluctuations. On average, firms with high leverage also tend to cut inventories 5% more when a shock in demand occurs.
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Bibliographic InfoPaper provided by Statistics Canada, Analytical Studies Branch in its series Analytical Studies Branch Research Paper Series with number 2004217e.
Date of creation: 18 Feb 2004
Date of revision:
Manufacturing; Business performance and ownership; Labour; Financial statements and performance; Industries; Current conditions;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-05 (All new papers)
- NEP-BEC-2006-02-05 (Business Economics)
- NEP-FMK-2006-02-05 (Financial Markets)
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