Financial conservatism fosters job creation during economic crises

F. Javier Sánchez-Vidal, Myriam Hernández-Robles and Antonio Mínguez-Vera

Applied Economics, 2020, vol. 52, issue 45, 4913-4926

Abstract: This article aims to analyse the phenomenon of financial conservatism in firms’ capital structures and relate it to their employment variation for a sample of Spanish companies during the 2008–2013 period, characterized by a sharp crisis and very high unemployment rates. Financial conservatism is described as following a low-leverage/high cash no-short-term capital structure policy. We use the noisy selection model that relates growth, age, and size, to which we add a dummy indicating financial conservatism. As the growth of a company is measured as its number of employees’ variation, we are ultimately analysing how financial conservatism affects job creation. The objective of this work is to stress the advantages of a financially conservative policy as the evidence shows that such a policy at a given enterprise is a positive factor for job creation, which in Macroeconomics terms means an improvement in economy’s employment. The average conservative company more likely to foster job creation is a small company belonging to the industry or services sector.

Date: 2020
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DOI: 10.1080/00036846.2020.1751053

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