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The nonlinear impact of debt on employment: Does institutional quality matter?

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  • Machokoto, Michael
  • Bayai, Innocent
  • Kadzima, Marvelous

Abstract

Using a large firm-level dataset from 55 countries over the period 1990–2019, we find that debt has a significant non-monotonic impact on employment. Employment increases with debt until a threshold of 38% of total assets is reached before declining. Furthermore, we find that the debt threshold for employment is moderated by institutional quality, with higher debt thresholds for employment in high-quality institutional countries and lower thresholds in low-quality institutional countries. These results are consistent even during the global financial crisis and are robust to several concerns. More importantly, highlights the critical moderating role of institutional quality on the effects of debt on employment decisions.

Suggested Citation

  • Machokoto, Michael & Bayai, Innocent & Kadzima, Marvelous, 2023. "The nonlinear impact of debt on employment: Does institutional quality matter?," Finance Research Letters, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323008085
    DOI: 10.1016/j.frl.2023.104436
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    More about this item

    Keywords

    Employment; Debt; Financial crisis; Institutional quality;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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