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Operating Flexibility and Capital Structure: Evidence from a Natural Experiment

  • Olga Kuzmina

    ()

    (New Economic School)

This paper provides causal evidence of flexible operating strategies a¤ecting capital structure of firms. I exploit the appealing setting of the European labor market to show that the use of employment contracts that provide firms with a greater operating flexibility in terms of less costly firing promotes debt financing. I build the identification strategy on the exogenous inter-temporal and cross-regional variation in government programs that discouraged the use of more flexible contracts by firms. The results of the paper highlight the importance of examining operating and organizational strategies as integral determinants of corporate financing policies.

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Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0197.

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Length: 48 pages
Date of creation: Jul 2013
Date of revision:
Handle: RePEc:cfr:cefirw:w0197
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