Firms' Financial Policy and Labour Demand: Theory and Evidence

Pål Bergström () and Sara Lindberg
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Sara Lindberg: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

No 1998:18, Working Paper Series from Uppsala University, Department of Economics

Abstract: We investigate the influence of financial leverage on firms' hiring decisions in the context of a hierarchy of finance model. The analysis is based on the Euler equation of employment in the presence of convex adjustment costs. We show the empirical implications of firms facing a hierarchy of financial costs, and estimate a linearised version of the model on a large panel of Swedish manufacturing firms. Bootstrap methods are utilised to alleviate some of the estimation problems involved. The empirical findings indicate that the influence of financial leverage on firms' hiring decisions differs significantly between firms in different financial regimes.

Keywords: Employment Determination; Financial Policy; Panel Data (search for similar items in EconPapers)
JEL-codes: D92 G32 J23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ltv
Date: 1998-09-01
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Persistent link: http://EconPapers.repec.org/RePEc:hhs:uunewp:1998_018

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