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The Role of Relationship Lending on Employment Decisions in Firms’ Bad Times

Pierluigi Murro (), Tommaso Oliviero () and Alberto Zazzaro ()

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: Using firm-level survey information, we study if relationship lending affects companies’ employment decisions when they face adverse conditions. Our empirical analysis reveals that firms with durable lending relationships show a significantly lower degree of sensitivity of internal workforce variation to shocks in sales. This result is robust to different measures of the shocks in sales and to an instrumental variable strategy. We also show that the result is stronger for younger, smaller and more innovative firms, confirming that relationship lending provides insurance against adverse conditions for companies whose internal labor force is arguably more valuable.

Keywords: Employment; relationship banking; insurance (search for similar items in EconPapers)
JEL-codes: G32 G38 H53 J65 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-cse, nep-eur and nep-lab
Date: 2019-06-26
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:533

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