Credit and Firms’ Organization
41 Pages Posted: 26 Apr 2024
Abstract
We investigate how credit availability affects the organization of firms’ labor. We construct an in- strument for firm’s credit supply based on firm-bank credit linkages and conduct an event study on the decision to reorganize the labor force using data on Portuguese firms, workers and banks. We show that the reorganization of the firms’ labor structure is connected to the financing of machines and equipment: firms that invested in machines and equipment are more exposed to credit shortages and reorganize by reducing employment of production workers and specialized workers that are complementary with ma- chines. These findings shed light on how credit dynamics shape labor decisions within firms, providing valuable insights into their behavior in response to financial limitations.
Keywords: Firm organisation, firm credit, machines and equipment, worker-credit complementarities
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