Corporate Financial Leverage in Canadian Manufacturing: Consequences for Employment and Inventories

Andrew Heisz and Sebastien Larochelle-Cote

Analytical Studies Branch Research Paper Series from Statistics Canada, Analytical Studies Branch

Abstract:

This paper investigates the link between financial structure and employment growth, and the link between financial structure and inventory growth, among incorporated Canadian manufacturers from 1988 to 1997. It finds that financially vulnerable firms - smaller firms and those with higher leverage - shed nearly 10% more labour than financially healthier firms for a given drop in product demand. The influence was larger during the recession of 1990 to 1992 indicating that higher financial vulnerability, reflected in high leverage, may have worsened during that period. The influence was also greater in sectors that experienced larger cyclical fluctuations. On average, firms with high leverage also tend to cut inventories 5% more when a shock in demand occurs.

Keywords: Business performance and ownership; Current conditions; Financial statements and performance; Industries; Labour; Manufacturing (search for similar items in EconPapers)
Date: 2004-02-18
New Economics Papers: this item is included in nep-bec and nep-fmk
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:stc:stcp3e:2004217e

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