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Does Employment Protection Legislation Affect Firm Investment? The European Case

  • Giorgio Calcagnini


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

  • Germana Giombini


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

This paper aims at analyzing the impact of Employment Protection Legislation (EPL) on frms' investment policies in the presence of financial imperfections. Our results show that investment is positively correlated to measures of internal funds available to firms and negatively to the level of national labour market regulation. Moreover, the latter is stronger wherever financial market imperfections are larger: firms with better access to financial markets are in a position to determine their optimal investment policy, even in the presence of stringent Employment Protection Laws, than those facing financial constraints. Our results support the effort put forward by European institutions in recent years to reform both markets.

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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 0902.

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Length: 35 pages
Date of creation: 2009
Date of revision: 2009
Handle: RePEc:urb:wpaper:09_02
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