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Does employment protection legislation affect credit access? Evidence from Europe

Andrea Moro, Daniela Maresch, Annalisa Ferrando and Gregory F. Udell

No 2063, Working Paper Series from European Central Bank

Abstract: We investigate the impact of employment protection on firms credit access by looking at both credit obtained from banks and firms’ decision to apply for a loan. We find that greater flexibility in structuring the employees’ working hours and in dismissing employees increases the probability that firms obtain credit and that greater flexibility in dismissing employees decreases the probability that firms are discouraged from applying for credit. However, our findings also reveal that firms perceive regulations providing flexibility with regard to the employees’ working hours differently from banks, leading to a situation in which firms are more likely to be discouraged from applying for a loan, even though the probability to obtain a loan increases. Our results are robust to confounding, endogeneity, selection bias as well as to alternative specifications. JEL Classification: D22, G21, G32, J41

Keywords: credit access; discouraged borrower; employment protection legislation; labour market (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-eur and nep-lma
Date: 2017-05
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Handle: RePEc:ecb:ecbwps:20172063