Credit shocks, employment protection, and growth:firm-level evidence from spain

Luc Laeven, Peter McAdam () and Alexander Popov

Journal of Banking & Finance, 2023, vol. 152, issue C

Abstract: We exploit a provision in Spanish labor laws whereby employment protection is more stringent for firms with 50+ employees. Firm-level evidence suggests that during the credit crunch of 2008-09, healthy firms with less than 50 employees borrowing from troubled banks grew faster in sectors where production factors were sufficiently substitutable. This effect is made possible by firms’ substituting labor for capital when the rental cost of capital increases. Our analysis sheds new light on the importance of labor regulation and the technological substitutability of the factors of production in enabling firms to adjust to financial shocks.

Keywords: Credit crunch; Employment protection; Capital-labor substitution; Firm growth (search for similar items in EconPapers)
JEL-codes: D20 G21 J80 (search for similar items in EconPapers)
Date: 2023
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Related works:
Working Paper: Credit Shocks, Employment Protection, and Growth: Firm-level Evidence from Spain (2018)
Working Paper: Credit shocks, employment protection, and growth: firm-level evidence from Spain (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:152:y:2023:i:c:s0378426623000754

DOI: 10.1016/j.jbankfin.2023.106850

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