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Firms? Investment in the Presence of Labor and Financial Market Imperfections

Author

Listed:
  • Giorgio Calcagnini

    (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino)

  • Germana Giombini

    (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino (Italy))

  • Enrico Saltari

    (Dipartimento di Economia Pubblica, Università di Roma ?La Sapienza?)

Abstract

This paper analyses how financial and labor market imperfections jointly influence investment. The contemporaneous presence of imperfections in both markets gives rise to a negative correlation between EPL and investment: firms facing negative shocks see their financial constraints worsen in countries with greater labor market rigidities. Internal funds have an overall positive impact on investment, notwithstanding the presence of labor market rigidities acts as a disincentive to the use internal funds for financing new projects. If capital is sunk and the legal environment favors ex-post profit appropriation by workers, firms use internal funds for ends alternative to fixed investment. Our results support the effort put forward by European institutions to reform both markets.

Suggested Citation

  • Giorgio Calcagnini & Germana Giombini & Enrico Saltari, 2009. "Firms? Investment in the Presence of Labor and Financial Market Imperfections," Working Papers 0901, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2009.
    • Handle: RePEc:urb:wpaper:09_01
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    References listed on IDEAS

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    Cited by:

    1. Calcagnini, Giorgio & Ferrando, Annalisa & Giombini, Germana, 2014. "Does employment protection legislation affect firm investment? The European case," Economic Modelling, Elsevier, vol. 36(C), pages 658-665.
    2. Giorgio Calcagnini & Annalisa Ferrando & Germana Giombini, 2015. "Multiple market imperfections, firm profitability and investment," European Journal of Law and Economics, Springer, vol. 40(1), pages 95-120, August.

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    More about this item

    Keywords

    Investment Models; Financing Constraints; Labor Protection Legislation; Panel Data Models;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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