How Does Financial Pressure Affect Firms?
This paper investigates the impact on company behavior of increases in financial pressure. The best measure of this the authors find to be the ratio of interest payments to cash flow. An increase in this measure has a large negative effect on employment controlling for current and expected wages and demand. It also has a negative impact on pay rises and a small positive effect on productivity. These effects are identified by using as an instrument the inherited debt burden of the firm (two or...Expand abstract
- European Economic Review
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