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Financial frictions and the K/L ratio in UK manufacturing industries

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  • Marina-Eliza Spaliara

    (Dept of Economics, Loughborough University)

Abstract

Using comprehensive financial data on UK unquoted firms, we investigate whether technological differences of UK manufacturing industries influence the response of firms' capital-labour ratio (K/L) to changes in financial indicators under capital market imperfections. The results reveal that cash flow has a positive impact on the K/L ratio for constrained firms in high tech industries and a negative impact for firms with similar characteristics in low tech industries. Specifically, the sensitivity of the K/L ratio to cash flow not only depends on firms' net worth and financial frictions, but most importantly on firms' industry affiliation.

Suggested Citation

  • Marina-Eliza Spaliara, 2010. "Financial frictions and the K/L ratio in UK manufacturing industries," Discussion Paper Series 2010_7, Department of Economics, Loughborough University.
    • Handle: RePEc:lbo:lbowps:2010_7
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    File URL: http://www.lboro.ac.uk/departments/sbe/RePEc/lbo/lbowps/MES.pdf
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    References listed on IDEAS

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