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Firms’ Investment in the Presence of Labor and Financial Market Imperfections

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Author Info
Giorgio Calcagnini () (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino)
Germana Giombini () (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino (Italy))
Enrico Saltari () (Dipartimento di Economia Pubblica, Università di Roma “La Sapienza”)

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Abstract

This paper analyses how financial and labor market imperfections jointly influence investment. The contemporaneous presence of imperfections in both markets gives rise to a negative correlation between EPL and investment: firms facing negative shocks see their financial constraints worsen in countries with greater labor market rigidities. Internal funds have an overall positive impact on investment, notwithstanding the presence of labor market rigidities acts as a disincentive to the use internal funds for financing new projects. If capital is sunk and the legal environment favors ex-post profit appropriation by workers, firms use internal funds for ends alternative to fixed investment. Our results support the effort put forward by European institutions to reform both markets.

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File URL: http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_09_01.pdf
File Format: application/pdf
File Function: First version, 2008
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Publisher Info
Paper provided by University of Urbino Carlo Bo, Department of Economics in its series Working Papers with number 0901.

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Length: 23 pages
Date of creation: 2009
Date of revision: 2009
Handle: RePEc:urb:wpaper:09_01

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Web page: http://www.econ.uniurb.it/
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Related research
Keywords: Investment Models; Financing Constraints; Labor Protection Legislation; Panel Data Models;

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Find related papers by JEL classification:
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy
J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data

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  5. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1988-1), pages 141-206. [Downloadable!]
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  6. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, vol. 115(500), pages 1-27, 01. [Downloadable!] (restricted)
  7. Lensink, Robert & Sterken, Elmer, 2000. " Capital Market Imperfections, Uncertainty and Corporate Investment in the Czech Republic," Economic Change and Restructuring, Springer, vol. 33(1-2), pages 53-70. [Downloadable!] (restricted)
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  8. Andrew B. Abel & Olivier J. Blanchard, 1989. "Investment and Sales: Some Empirical Evidence," NBER Working Papers 2050, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Ansgar Belke & Rainer Fehn, . "Institutions and Structural Unemployment: Do Capital-Market Imperfections Matter?," German Working Papers in Law and Economics 2001-default/2001/1-1008, Berkeley Electronic Press. [Downloadable!]
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  10. Joao F. Gomes, 2001. "Financing Investment," American Economic Review, American Economic Association, vol. 91(5), pages 1263-1285, December. [Downloadable!] (restricted)
  11. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August. [Downloadable!] (restricted)
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  12. Alberto Alesina & Silvia Ardagna & Giuseppe Nicoletti & Fabio Schiantarelli, 2005. "Regulation And Investment," Journal of the European Economic Association, MIT Press, vol. 3(4), pages 791-825, 06. [Downloadable!] (restricted)
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