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The Employee Severance Indemnity Reform and Firms Capital Structure: An Empirical Analysis on a Sample of Italian Firms


  • Stefania Cosci

    () (University LUMSA, Rome)

  • Roberto Guida

    () (University S. Pio V, Rome)

  • Valentina Meliciani

    () (University of Teramo)


This paper studies the impact of the reform of the Employees Severance Indemnity (ESI) fund on Italian firms’ capital structure for a sample of 4680 Italian firms observed over the period 1991-2000. We find that, controlling for various factors affecting firms’ total leverage, ESI is a substitute for firms’ leverage. We also find that the degree of substitution varies with firms’ size and between short-term and medium long-term leverage. The results of our studysuggest that medium firms will be the more damaged by the ESI reform. Finally we find that the degree of substitution between ESI and leverage is lower in periods of low interest rates.

Suggested Citation

  • Stefania Cosci & Roberto Guida & Valentina Meliciani, 2007. "The Employee Severance Indemnity Reform and Firms Capital Structure: An Empirical Analysis on a Sample of Italian Firms," Rivista di Politica Economica, SIPI Spa, vol. 97(5), pages 83-110, September.
  • Handle: RePEc:rpo:ripoec:v:97:y:2007:i:5:p:83-110

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models


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