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Does Employment Protection Legislation Affect Firm Investment? The European Case

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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))

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Abstract

This paper aims at analyzing the impact of Employment Protection Legislation (EPL) on frms' investment policies in the presence of financial imperfections. Our results show that investment is positively correlated to measures of internal funds available to firms and negatively to the level of national labour market regulation. Moreover, the latter is stronger wherever financial market imperfections are larger: firms with better access to financial markets are in a position to determine their optimal investment policy, even in the presence of stringent Employment Protection Laws, than those facing financial constraints. Our results support the effort put forward by European institutions in recent years to reform both markets.

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File URL: http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_09_02.pdf
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Publisher Info
Paper provided by University of Urbino Carlo Bo, Department of Economics in its series Working Papers with number 0902.

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Length: 35 pages
Date of creation: 2009
Date of revision: 2009
Handle: RePEc:urb:wpaper:09_02

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Web page: http://www.econ.uniurb.it/
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Related research
Keywords: Employment Protection Legislation; Financial Constraints; Investments.;

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Find related papers by JEL classification:
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

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