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Does employment protection legislation affect credit access? Evidence from Europe

Author

Listed:
  • Moro, Andrea
  • Maresch, Daniela
  • Ferrando, Annalisa
  • Udell, Gregory F.

Abstract

We investigate the impact of employment protection on firms credit access by looking at both credit obtained from banks and firms’ decision to apply for a loan. We find that greater flexibility in structuring the employees’ working hours and in dismissing employees increases the probability that firms obtain credit and that greater flexibility in dismissing employees decreases the probability that firms are discouraged from applying for credit. However, our findings also reveal that firms perceive regulations providing flexibility with regard to the employees’ working hours differently from banks, leading to a situation in which firms are more likely to be discouraged from applying for a loan, even though the probability to obtain a loan increases. Our results are robust to confounding, endogeneity, selection bias as well as to alternative specifications. JEL Classification: D22, G21, G32, J41

Suggested Citation

  • Moro, Andrea & Maresch, Daniela & Ferrando, Annalisa & Udell, Gregory F., 2017. "Does employment protection legislation affect credit access? Evidence from Europe," Working Paper Series 2063, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20172063
    Note: 2617719
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2063.en.pdf
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    References listed on IDEAS

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    Cited by:

    1. Setzer, Ralph & Stieglitz, Moritz, 2019. "Firm-level employment, labour market reforms, and bank distress," IWH Discussion Papers 15/2019, Halle Institute for Economic Research (IWH).

    More about this item

    Keywords

    credit access; discouraged borrower; employment protection legislation; labour market;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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