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F&A Seminars Easter term: Capital Structure and Employment Flexibility by Olga Kuzmina

When Apr 30, 2013
from 09:35 AM to 09:40 AM
Where CJBS
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This paper uses a unique panel dataset to establish a causal relationship between the use of flexible contractual arrangements with labor and capital structure of the firm. Using the exogenous inter-temporal and cross-regional variation in government labour policies, I find that hiring more temporary workers leads firms to have more debt. Characterized by much lower. ring costs, temporary employment contracts allow firms to adjust the labor force and profits upon negative shocks realizations and reduce the default risk on the margin, thereby promoting debt financing. I find the supporting evidence of this mechanism and also interpret is as a substitution between operating and financial leverage. Given the overwhelming extent of labour reforms in continental Europe in recent years that touch upon the incentives to use different employment contracts and are aimed at offering more job security to workers, it is important to understand how such policies would affect firms.

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