Employment adjustment and financing constraints: A theoretical and empirical analysis at the micro level

Werner Smolny and Peter Winker

No 573, Discussion Papers from Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre

Abstract: Firms may face financing constraints as a result of rational behaviour of potential lenders due to asymmetric information. In this article, a theoretical model of employment adjustment is developed to derive hypotheses on the short-run impact of financing constraints on employment at the firm level. A unique firm panel data set for German manufacturing is used to assess the empirical evidence for this model. The data comprise high frequency data on employment adjustment and explicit statements on the existence of financing constraints. The estimation results reveal that financing constraints reduce employment and increase employment changes.

JEL-codes: D21 D82 J23 L11 (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:mnh:vpaper:1038

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