Details

Subject(s)

• Corporations—Finance—Econometric models [Browse]
• Employees—Dismissal of—Costs—Econometric models [Browse]
• Industrial productivity—Econometric models [Browse]
• Liquidity (Economics) [Browse]

Related name

• International Monetary Fund. European Dept [Browse]

Series

• IMF Working Papers; Working Paper ; No. 2007/120 [More in this series]
• IMF Working Papers

Summary note

This paper proposes a new effect of firing costs on firms' behavior that builds from firms' demand for liquidity. When a time gap exists between production and its associated revenues, firing can become a liquidity adjustment tool that allows firms to increase their short-term liquidity. I refer to this feature as labor's liquidity service. The presence of firing costs reduces the value of labor's liquidity service, which affects firms' demand for liquidity, and thus, firms' demand for inputs. In addition to this negative effect at the creation margin, I also show that firing costs imply relatively higher destruction for financially restricted firms. I present a model that develops these ideas and show that the presence of firing costs has a stronger negative effect on production levels of firms facing liquidity constraints. Regression analysis, based on country industry panel data sets, provides empirical evidence in line with the liquidity service effect of firing costs proposed. I reject the hypothesis that the effect of firing costs does not depend on the presence of financial restrictions. I find a relatively stronger negative effect of firing costs on the output of industries with higher liquidity requirements and a relatively stronger negative effect of firing costs on the output of small firms.

Notes

"May 2007".

Bibliographic references

Includes bibliographical references.

Source of description

Description based on print version record.

Language note

English

Contents

• Contents; I. Introduction; Figures; 1. ELP Index; II. Labor's Liquidity Service and Firing Costs; A. The Setting; B. The Problem of the Entrepreneur; C. Optimal Scale; D. The Effect of Firing Costs; III. Empirical Analysis; A. Empirical Analysis: Liquidity Requirements; Tables; 1. The Effect of the Interaction Between Firing Costs and Liquidity Requirements: Main Results; 2. The Effect of the Interaction Between Firing Costs and Liquidity Requirements: Robustness Checks; 3. The Effect of the Interaction Between Firing Costs and Liquidity Requirements: Asset Collateralization
• B. Empirical Analysis: Small Firms2. Difference in Difference; 4. The Effect of Firing Costs on Small Firms' Market Participation: Main Results; IV. Conclusion; Appendixes; I. Deriving the Threshold WB; II. The Effect of Optimal Scale on the Expected Value of Labor; III. First Order Condition L- > 0; IV. Composition of the Samples; Appendix Tables; A1. Manufacturing Sample (Countries); A2. Manufacturing Sample (Industries); A3. EU-15 Sample; References

ISBN

• 1-4623-9215-6
• 1-4519-8731-5
• 1-283-51775-2
• 9786613830203
• 1-4519-1137-8

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