The nonlinear impact of debt on employment: Does institutional quality matter?

Michael Machokoto, Innocent Bayai and Marvelous Kadzima

Finance Research Letters, 2023, vol. 57, issue C

Abstract: Using a large firm-level dataset from 55 countries over the period 1990–2019, we find that debt has a significant non-monotonic impact on employment. Employment increases with debt until a threshold of 38% of total assets is reached before declining. Furthermore, we find that the debt threshold for employment is moderated by institutional quality, with higher debt thresholds for employment in high-quality institutional countries and lower thresholds in low-quality institutional countries. These results are consistent even during the global financial crisis and are robust to several concerns. More importantly, highlights the critical moderating role of institutional quality on the effects of debt on employment decisions.

Keywords: Employment; Debt; Financial crisis; Institutional quality (search for similar items in EconPapers)
JEL-codes: G30 M40 M41 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323008085

DOI: 10.1016/j.frl.2023.104436

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