Labour market conditions and the corporate financing decision: A European analysis |
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| Affiliation: | 1. University of Valladolid, Department of Financial Economics and Accounting, Faculty of Economics, Avenida Valle de Esgueva, 6 – 47011, Valladolid, Spain;2. National Research University Higher School of Economics, ID Lab of Intangible-driven Economy, Perm, Russian Federation |
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| Abstract: | This study examines the influence of labour market conditions on corporate capital structure in a sample of 2892 firms from France, Germany, Italy, Spain, and the UK. After considering the effect of unemployment and inflation, we analyse the impact of two market imperfections: employees’ rights and downward wage rigidity. Results indicate that financial leverage responds to changes in unemployment and inflation. We also find that the influence of employees’ rights is non-linear, whereas the negative effect of downward wage rigidity is moderated by firms’ market power. Taken together, our results show that corporate financial decisions are conditioned not only by firm-level issues but also by a country’s labour market. |
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| Keywords: | Capital structure Unemployment Inflation Labour market Employees’rights Wage rigidity |
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