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Relationship lending and employment decisions in firms' bad times

Author

Listed:
  • Pierluigi Murro

    (LUISS-Guido Carli University.)

  • Tommaso Oliviero

    (University of Naples Federico II and CSEF)

  • Alberto Zazzaro

    (University of Naples Federico II, CSEF and MoFiR)

Abstract

Using firm-level survey information, we investigate whether relationship lending affects firms' employment decisions when they experience negative shocks on sales. We find that firms maintaining long-lasting relationships with their main bank show a significantly lower sensitivity of employment growth rate to shocks in sales. This result is robust to measurement issues and to an instrumental variable strategy, and is stronger for young, small, human-capital-intensive firms. Our findings indicate that relationship lending acts as an insurance for firms' employees against adverse sales fluctuations, especially for firms whose internal workforce is more valuable and is thus substitutable at larger costs.

Suggested Citation

  • Pierluigi Murro & Tommaso Oliviero & Alberto Zazzaro, 2020. "Relationship lending and employment decisions in firms' bad times," Mo.Fi.R. Working Papers 160, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  • Handle: RePEc:anc:wmofir:160
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    References listed on IDEAS

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    Cited by:

    1. Patrick Behr & Lars Norden & Raquel Oliveira, 2020. "Labor and finance: the effect of bank relationships," Working Papers Series 534, Central Bank of Brazil, Research Department.
    2. Pierluigi Murro & Valentina Peruzzi, 2020. "Relationship lending and the use of trade credit: the role of relational capital and private information," Working Papers CASMEF 2006, Dipartimento di Economia e Finanza, LUISS Guido Carli.

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    More about this item

    Keywords

    employment; relationship banking; insurance;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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