Relationship lending and employment decisions in firms' bad times

Pierluigi Murro, Tommaso Oliviero () and Alberto Zazzaro ()

No 160, Mo.Fi.R. Working Papers from Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences

Abstract: Using firm-level survey information, we investigate whether relationship lending affects firms' employment decisions when they experience negative shocks on sales. We find that firms maintaining long-lasting relationships with their main bank show a significantly lower sensitivity of employment growth rate to shocks in sales. This result is robust to measurement issues and to an instrumental variable strategy, and is stronger for young, small, human-capital-intensive firms. Our findings indicate that relationship lending acts as an insurance for firms' employees against adverse sales fluctuations, especially for firms whose internal workforce is more valuable and is thus substitutable at larger costs.

Keywords: employment; relationship banking; insurance (search for similar items in EconPapers)
JEL-codes: G32 G38 H53 J65 (search for similar items in EconPapers)
Pages: 50
Date: 2020-04
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-ent, nep-ias, nep-lab and nep-sbm
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http://docs.dises.univpm.it/web/quaderni/pdfmofir/Mofir160.pdf First version, 2020 (application/pdf)

Related works:
Journal Article: Relationship Lending and Employment Decisions in Firms’ Bad Times (2023)
Working Paper: Relationship Lending on Employment Decisions in Firms’ Bad Times (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:anc:wmofir:160

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