Operating Flexibility and Capital Structure: Evidence from a Natural Experiment

Olga Kuzmina

No w0197, Working Papers from New Economic School (NES)

Abstract: This paper provides causal evidence of flexible operating strategies a¤ecting capital structure of firms. I exploit the appealing setting of the European labor market to show that the use of employment contracts that provide firms with a greater operating flexibility in terms of less costly firing promotes debt financing. I build the identification strategy on the exogenous inter-temporal and cross-regional variation in government programs that discouraged the use of more flexible contracts by firms. The results of the paper highlight the importance of examining operating and organizational strategies as integral determinants of corporate financing policies.

Keywords: Capital Structure; Fixed-term Contracts; Operating Leverage; Operating Flexibility (search for similar items in EconPapers)
JEL-codes: D22 G32 J41 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2013-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Working Paper: Operating Flexibility and Capital Structure: Evidence from a Natural Experiment (2013)
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