Does Employment Protection Legislation Affect Firm Investment? The European Case

Giorgio Calcagnini () and Germana Giombini ()
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Germana Giombini: Dipartimento di Economia e Metodi Quantitativi, Università di Urbino (Italy)

No 902, Working Papers from University of Urbino Carlo Bo, Department of Economics

Abstract: 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.

Keywords: Employment Protection Legislation; Financial Constraints; Investments. (search for similar items in EconPapers)
JEL-codes: J30 D92 C23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-eec and nep-reg
Date: 2009, Revised 2009
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http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_09_02.pdf First version, 2008 (application/pdf)

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Persistent link: http://EconPapers.repec.org/RePEc:urb:wpaper:09_02

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