Firms' Financial Policy and Labour Demand: Theory and Evidence
We investigate the influence of financial leverage on firms' hiring decisions in the context of a hierarchy of finance model. The analysis is based on the Euler equation of employment in the presence of convex adjustment costs. We show the empirical implications of firms facing a hierarchy of financial costs, and estimate a linearised version of the model on a large panel of Swedish manufacturing firms. Bootstrap methods are utilised to alleviate some of the estimation problems involved. The empirical findings indicate that the influence of financial leverage on firms' hiring decisions differs significantly between firms in different financial regimes.
|Date of creation:||01 Sep 1998|
|Date of revision:|
|Contact details of provider:|| Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden|
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Fax: + 46 18 471 14 78
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