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Labour Market Conditions and the Corporate Financing Decision: A European Analysis

Research in International Business and Finance, Forthcoming

38 Pages Posted: 19 Apr 2021

See all articles by Pedro Luis Vega-Gutierrez

Pedro Luis Vega-Gutierrez

University of Valladolid - Department of Financial Economics and Accounting

Félix J. López-Iturriaga

Universidad de Valladolid - Department of Finance and Accounting; National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy

Juan Antonio Rodríguez-Sanz

University of Valladolid - Department of Economics and Business Administration

Date Written: April 16, 2021

Abstract

This study examines the influence of labour market conditions on corporate capital structure in a sample of 2,892 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.

Keywords: capital structure, unemployment, inflation, labour market; employees’ rights, wage rigidity

JEL Classification: G30, G32, D22, C23

Suggested Citation

Vega-Gutierrez, Pedro Luis and Lopez-Iturriaga, Felix Javier and Rodríguez-Sanz, Juan Antonio, Labour Market Conditions and the Corporate Financing Decision: A European Analysis (April 16, 2021). Research in International Business and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3828165 or http://dx.doi.org/10.2139/ssrn.3828165

Pedro Luis Vega-Gutierrez (Contact Author)

University of Valladolid - Department of Financial Economics and Accounting ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain

Felix Javier Lopez-Iturriaga

Universidad de Valladolid - Department of Finance and Accounting ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain
+34 983 184 395 (Phone)
+34 983 183830 (Fax)

National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy ( email )

Lebedeva,27
Perm, Perm 614070
Russia

Juan Antonio Rodríguez-Sanz

University of Valladolid - Department of Economics and Business Administration ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain
+34-983-423000 Ext. 24395 (Phone)
+34-983-423333 (Fax)

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