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Subsidized labour and firms: Investment, profitability, and leverage

Author

Listed:
  • Isaac Marcelin
  • Daniel Brink
  • David Oluwatosin Fadiran
  • Hammed Adedeji Amusa

Abstract

Employing the difference-in-differences technique, this study examines the impact of the Employment Tax Incentive programme on a large sample of South African firms from 2011 to 2016. It finds that programme firms expanded investments by 4.8 per cent, and profits by 5.7 per cent. Consistent with the financial constraints theory, leverage rose by 6.63 per cent at smaller ETI firms, which are plagued with information asymmetry problems. Results imply both cost and liquidity mechanisms whereby the policy defrayed labour costs to boost profits and cash flows.

Suggested Citation

  • Isaac Marcelin & Daniel Brink & David Oluwatosin Fadiran & Hammed Adedeji Amusa, 2019. "Subsidized labour and firms: Investment, profitability, and leverage," WIDER Working Paper Series wp-2019-50, World Institute for Development Economic Research (UNU-WIDER).
  • Handle: RePEc:unu:wpaper:wp-2019-50
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    References listed on IDEAS

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