This paper aims at analyzing the impact of Employment Protection Legislation (EPL) on firms' investment policies in the contemporaneous presence of financial imperfections. Our results show that investment is significantly affected by the presence of both market imperfections; they are robust to alternative measures of EPL. Moreover, the effect of labor market regulation is weaker wherever financial market imperfections are smaller: firms with better access to financial markets are in a position to determine their optimal investment policy, even in the presence of stringent employment protection laws, than those facing financial constraints.

Does employment protection legislation affect firm investment? The European case

CALCAGNINI, GIORGIO;GIOMBINI, GERMANA
2014-01-01

Abstract

This paper aims at analyzing the impact of Employment Protection Legislation (EPL) on firms' investment policies in the contemporaneous presence of financial imperfections. Our results show that investment is significantly affected by the presence of both market imperfections; they are robust to alternative measures of EPL. Moreover, the effect of labor market regulation is weaker wherever financial market imperfections are smaller: firms with better access to financial markets are in a position to determine their optimal investment policy, even in the presence of stringent employment protection laws, than those facing financial constraints.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11576/2569176
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