Labour market conditions and the corporate financing decision: A European analysis

Pedro Luis Vega-Gutierrez, Félix López-Iturriaga () and Juan Antonio Rodriguez-Sanz

Research in International Business and Finance, 2021, vol. 58, issue C

Abstract: This study examines the influence of labour market conditions on corporate capital structure in a sample of 2892 firms from France, Germany, Italy, Spain, and the UK. After considering the effect of unemployment and inflation, we analyse the impact of two market imperfections: employees’ rights and downward wage rigidity. Results indicate that financial leverage responds to changes in unemployment and inflation. We also find that the influence of employees’ rights is non-linear, whereas the negative effect of downward wage rigidity is moderated by firms’ market power. Taken together, our results show that corporate financial decisions are conditioned not only by firm-level issues but also by a country’s labour market.

Keywords: Capital structure; Unemployment; Inflation; Labour market; Employees’rights; Wage rigidity (search for similar items in EconPapers)
JEL-codes: C23 D22 G30 G32 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:58:y:2021:i:c:s0275531921000520

DOI: 10.1016/j.ribaf.2021.101431

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