Review of Corporate Finance > Vol 5 > Issue 1–2

Labour Protection Legislation and Discouraged Borrowers in Europe

Andrea Moro, Centre for Innovation and Research at Lund University (CIRCLE), Sweden AND Dalm Management and Strategy Ltd, UK, prof.andrea.moro@gmail.com , Annalisa Ferrando, European Central Bank, Germany
 
Suggested Citation
Andrea Moro and Annalisa Ferrando (2025), "Labour Protection Legislation and Discouraged Borrowers in Europe", Review of Corporate Finance: Vol. 5: No. 1–2, pp 61-115. http://dx.doi.org/10.1561/114.00000071

Publication Date: 31 Mar 2025
© 2025 A. Moro and A. Ferrando
 
Subjects
Corporate finance,  Small business and economic growth
 
Keywords
JEL Codes: D22, G21, G32, J41
Credit accessdiscouraged borrowernotice periodlendinglabour market
 

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In this article:
Introduction 
Development of Hypotheses 
Data and Methodology 
Descriptive Statistics 
Main Results 
Discussion and Implications 
Conclusion 
Appendix 
References 

Abstract

We investigate the impact of employment protection regulation on firms’ reluctance to apply for bank finance (loans and overdrafts). Our findings reveal that longer notice periods reduce the likelihood that firms are discouraged from applying for bank finance in the case of blue-collar workers, but they increase it in the case of white-collar workers. Our interpretation is that, in the case of blue-collar workers, the benefits of extra time to transfer their knowledge and expertise to remaining workers outweigh the cost savings associated with dismissal. However, in the case of white-collar workers, the benefits to firms of dismissing high-cost workers outweigh the risk of losing the knowledge and expertise of employees leaving the firm. Our results are robust to alternative specifications, endogeneity issues, and a battery of robustness tests.

DOI:10.1561/114.00000071

Online Appendix | 114.00000071_app.pdf

This is the article's accompanying appendix.

DOI: 10.1561/114.00000071_app

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