The Employee Severance Indemnity Reform and Firms Capital Structure: An Empirical Analysis on a Sample of Italian Firms

Stefania Cosci (), Roberto Guida () and Valentina Meliciani ()
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Stefania Cosci: University LUMSA, Rome
Roberto Guida: University S. Pio V, Rome

Rivista di Politica Economica, 2007, vol. 97, issue 5, 83-110

Abstract: This paper studies the impact of the reform of the Employees Severance Indemnity (ESI) fund on Italian firms’ capital structure for a sample of 4680 Italian firms observed over the period 1991-2000. We find that, controlling for various factors affecting firms’ total leverage, ESI is a substitute for firms’ leverage. We also find that the degree of substitution varies with firms’ size and between short-term and medium long-term leverage. The results of our studysuggest that medium firms will be the more damaged by the ESI reform. Finally we find that the degree of substitution between ESI and leverage is lower in periods of low interest rates.

JEL-codes: C23 G32 J38 (search for similar items in EconPapers)
Date: 2007
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