IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

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

  • 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”)

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: First version, 2008
Download Restriction: no

Paper provided by University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini in its series Working Papers with number 0901.

in new window

Length: 23 pages
Date of creation: 2009
Date of revision: 2009
Handle: RePEc:urb:wpaper:09_01
Contact details of provider: Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Wasmer, Etienne & Weil, Philippe, 2002. "The Macroeconomics of Labour and Credit Market Imperfections," CEPR Discussion Papers 3334, C.E.P.R. Discussion Papers.
  2. Sterken, Elmer & Lensink, Robert & Bo, Hong, 2002. "Investment, cash flow and uncertainty: evidence for the Netherlands," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 A3-2, International Conferences on Panel Data.
  3. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  4. Joao F. Gomes, 2001. "Financing Investment," American Economic Review, American Economic Association, vol. 91(5), pages 1263-1285, December.
  5. Ansgar Belke & Rainer Fehn, 2001. "Institutions and Structural Unemployment: Do Capital-Market Imperfections Matter?," CESifo Working Paper Series 504, CESifo Group Munich.
  6. Marcello M. Estevão, 2004. "Why is Productivity Growth in the Euro Area so Sluggish?," IMF Working Papers 04/200, International Monetary Fund.
  7. Sean Cleary & Paul Povel & Michael Raith, 2003. "The U-shaped Investment Curve: Theory and Evidence," Finance 0311010, EconWPA.
  8. Alberto Alesina & Silvia Ardagna & Giuseppe Nicoletti & Fabio Schiantarelli, 2005. "Regulation And Investment," Journal of the European Economic Association, MIT Press, vol. 3(4), pages 791-825, 06.
  9. Thorsten Beck, 2004. "The determinants of financing obstacles," Policy Research Working Paper Series 3204, The World Bank.
  10. Giorgio Calcagnini & Enrico Saltari, 2002. "Labour and financial market determinants of investiment decisions in Europe," Working Papers 56, University of Rome La Sapienza, Department of Public Economics.
  11. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  12. Bond, Stephen & Van Reenen, John, 2007. "Microeconometric Models of Investment and Employment," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 65 Elsevier.
  13. Bigsten, Arne, et al, 1999. " Investment in Africa's Manufacturing Sector: A Four Country Panel Data Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(4), pages 489-512, November.
  14. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 2000. "Investment-Cash Flow Sensitivities are Useful: A Comment on Kaplan and Zingales," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 695-705.
  15. Timothy Erickson & Toni M. Whited, 2000. "Measurement Error and the Relationship between Investment and q," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 1027-1057, October.
  16. 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.
  17. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, vol. 115(500), pages 1-27, 01.
  18. Andrew B. Abel & Olivier J. Blanchard, 1986. "Investment and Sales: Some Empirical Evidence," NBER Working Papers 2050, National Bureau of Economic Research, Inc.
  19. Saint-Paul, Gilles, 2002. "Macroeconomic Fluctuations and the Timing of Labor Market Reform," IDEI Working Papers 146, Institut d'Économie Industrielle (IDEI), Toulouse.
  20. Pierre, Gaëlle & Scarpetta, Stefano, 2004. "Employment Regulations through the Eyes of Employers: Do They Matter and How Do Firms Respond to Them?," IZA Discussion Papers 1424, Institute for the Study of Labor (IZA).
  21. Beck, Thorsten & Asl Demirguc-Kunt & Maksimovic, Vojislav, 2002. "Financing patterns around the world : the role of institutions," Policy Research Working Paper Series 2905, The World Bank.
  22. Olivier Blanchard & Thomas Philippon, 2004. "The Quality of Labor Relations and Unemployment," NBER Working Papers 10590, National Bureau of Economic Research, Inc.
  23. Giovanni Pica, 2001. "Labour Demand and Financial Markets Imperfections," STUDI ECONOMICI, FrancoAngeli Editore, vol. 2001(73).
  24. Lensink, R. & Sterken, Elmer, 1999. "Capital market imperfections, uncertainty and corporate investment in the Czech Republic," Research Report 99E51, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  25. Toke Aidt & Zafiris Tzannatos, 2002. "Unions and Collective Bargaining : Economic Effects in a Global Environment," World Bank Publications, The World Bank, number 15241.
  26. Francis Teal & Stefan Dercon & Måns Söderbom, 1997. "Investment in Africa`s manufacturing sector: a four-country panel data analysis," Economics Series Working Papers WPS/1997-11, University of Oxford, Department of Economics.
  27. 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.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:urb:wpaper:09_01. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carmela Nicoletti)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.