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Financing constraints and fixed-term employment contracts

This paper studies the interactions between financing constraints and the employment decisions of firms when both fixed-term and permanent employment contracts are available. We first develop a dynamic model that shows the effects of financing constraints and firing costs on employment decisions. Once calibrated, the model shows that financially constrained firms tend to use more intensely fixed term workers, and to make them absorb a larger fraction of the total employment volatility than financially unconstrained firms do. We test and confirm the predictions of the model on a unique panel data of Italian manufacturing firms with detailed information about the type of workers employed by the firms and about firm financing constraints.

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File URL: http://www.econ.upf.edu/docs/papers/downloads/1010.pdf
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1010.

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Date of creation: Jun 2006
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Handle: RePEc:upf:upfgen:1010
Contact details of provider: Web page: http://www.econ.upf.edu/

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  1. Kugler, Adriana & Pica, Giovanni, 2003. "The effects of employment protection and product market regulations on the Italian labor market," Discussion Paper Series In Economics And Econometrics 0310, Economics Division, School of Social Sciences, University of Southampton.
  2. R. Glenn Hubbard, 1997. "Capital-Market Imperfections and Investment," NBER Working Papers 5996, National Bureau of Economic Research, Inc.
  3. Whited, Toni M., 2006. "External finance constraints and the intertemporal pattern of intermittent investment," Journal of Financial Economics, Elsevier, vol. 81(3), pages 467-502, September.
  4. Andrea Caggese, 2003. "Testing Financing Constraints on Firm Investment Using Variable Capital," Working Papers 65, Barcelona Graduate School of Economics.
  5. Claudio Piga, 2002. "Debt and Firms' Relationships: The Italian Evidence," Review of Industrial Organization, Springer, vol. 20(3), pages 267-282, May.
  6. Roberto Basile & Anna Giunta & Jeffrey Nugent, 2003. "Foreign Expansion by Italian Manufacturing Firms in the Nineties: an Ordered Probit Analysis," Review of Industrial Organization, Springer, vol. 23(1), pages 1-24, August.
  7. O Blanchard & A Landier, 2002. "The Perverse Effects of Partial Labour Market Reform: fixed--Term Contracts in France," Economic Journal, Royal Economic Society, vol. 112(480), pages F214-F244, June.
  8. Serrano, Carlos Garcia, 1998. "Worker Turnover and Job Reallocation: The Role of Fixed-Term Contracts," Oxford Economic Papers, Oxford University Press, vol. 50(4), pages 709-25, October.
  9. Smolny, Werner & Winker, Peter, 1999. "Employment adjustment and financing constraints : A theoretical and empirical analysis at the micro level," Discussion Papers 573, Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre.
  10. Paolo Angelini & Andrea Generale, 2005. "Firm Size Distribution: Do Financial Constraints Explain It All? Evidence From Survey Data," Temi di discussione (Economic working papers) 549, Bank of Italy, Economic Research and International Relations Area.
  11. César Alonso-Borrego & Jesús Fernández-Villaverde & José E. Galdón-Sánchez, 2005. "Evaluating Labor Market Reforms: A General Equilibrium Approach," NBER Working Papers 11519, National Bureau of Economic Research, Inc.
  12. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
  13. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  14. Guiso, Luigi & Sapienza, Paola & Zingales, Luigi, 2002. "Does Local Financial Development Matter?," CEPR Discussion Papers 3307, C.E.P.R. Discussion Papers.
  15. Bentolila, Samuel & Saint-Paul, Gilles, 1992. "The macroeconomic impact of flexible labor contracts, with an application to Spain," European Economic Review, Elsevier, vol. 36(5), pages 1013-1047, June.
  16. Andrew Benito & Ignacio Hernando, 2008. "Labour Demand, Flexible Contracts and Financial Factors: Firm-Level Evidence from Spain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(3), pages 283-301, 06.
  17. repec:pri:indrel:dsp011j92g746j is not listed on IDEAS
  18. Stephen Nickell & Daphne Nicolitsas, 1995. "How does financial pressure affect firms?," LSE Research Online Documents on Economics 20698, London School of Economics and Political Science, LSE Library.
  19. cipollone piero & Anita Guelfi, 2003. "tax credit policy and firms' behaviour: the case of subsidy to open-end labour contract in italy," Temi di discussione (Economic working papers) 471, Bank of Italy, Economic Research and International Relations Area.
  20. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  21. Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
  22. Elyasiani, Elyas & Goldberg, Lawrence G., 2004. "Relationship lending: a survey of the literature," Journal of Economics and Business, Elsevier, vol. 56(4), pages 315-330.
  23. Juan J Dolado & Carlos Garcia--Serrano & Juan F. Jimeno, 2002. "Drawing Lessons From The Boom Of Temporary Jobs In Spain," Economic Journal, Royal Economic Society, vol. 112(721), pages F270-F295, June.
  24. Enrica Detragiache & Paolo Garella & Luigi Guiso, 2000. "Multiple versus Single Banking Relationships: Theory and Evidence," Journal of Finance, American Finance Association, vol. 55(3), pages 1133-1161, 06.
  25. Andrew Benito & Ignacio Hernando, 2003. "Labour demand, flexible contracts and financial factors: new evidence from Spain," Working Papers 0312, Banco de España;Working Papers Homepage.
  26. Heitor Almeida & Murillo Campello & Michael S. Weisbach, 2004. "The Cash Flow Sensitivity of Cash," Journal of Finance, American Finance Association, vol. 59(4), pages 1777-1804, 08.
  27. Boot, Arnoud W. A., 2000. "Relationship Banking: What Do We Know?," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 7-25, January.
  28. Bentolila, Samuel & Saint-Paul, Gilles, 1991. "The Macroeconomic Impact of Flexible Labour Contracts: An Application to Spain," CEPR Discussion Papers 596, C.E.P.R. Discussion Papers.
  29. Ausubel, Lawrence M, 1991. "The Failure of Competition in the Credit Card Market," American Economic Review, American Economic Association, vol. 81(1), pages 50-81, March.
  30. Sílvio Rendon, 2004. "Job Creation and Investment in Imperfect Capital and Labor Markets," Economic Working Papers at Centro de Estudios Andaluces E2004/35, Centro de Estudios Andaluces.
  31. Adriana Kugler & Giovanni Pica, 2003. "Effects of employment protection and product market regulations on the Italian labor market," Economics Working Papers 722, Department of Economics and Business, Universitat Pompeu Fabra.
  32. Steven N. Kaplan & Luigi Zingales, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 169-215.
  33. Christopher A. Hennessy & Toni M. Whited, 2007. "How Costly Is External Financing? Evidence from a Structural Estimation," Journal of Finance, American Finance Association, vol. 62(4), pages 1705-1745, 08.
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