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The Role of Relationship Lending on Employment Decisions in Firms’ Bad Times

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Abstract

Using firm-level survey information, we study if relationship lending affects companies’ employment decisions when they face adverse conditions. Our empirical analysis reveals that firms with durable lending relationships show a significantly lower degree of sensitivity of internal workforce variation to shocks in sales. This result is robust to different measures of the shocks in sales and to an instrumental variable strategy. We also show that the result is stronger for younger, smaller and more innovative firms, confirming that relationship lending provides insurance against adverse conditions for companies whose internal labor force is arguably more valuable.

Suggested Citation

  • Pierluigi Murro & Tommaso Oliviero & Alberto Zazzaro, 2019. "The Role of Relationship Lending on Employment Decisions in Firms’ Bad Times," CSEF Working Papers 533, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:533
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    Keywords

    Employment; relationship banking; insurance;

    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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