Journal of Financial Economics Vol. 118 No. 3 2015
Debt, labor markets, and the creation and destruction of firms
Abstract
We analyze the financing and liquidation decisions of firms that face a labor market with search frictions. By inducing bankruptcy, debt can facilitate the process of creative destruction (i.e., the elimination of inefficient firms and the creation of new firms) but can also lead to excessive liquidation and unemployment in particular, during economic downturns. Within this setting, we examine policy interventions that influence the firms׳ financing and liquidation choices. We consider the role of monetary policy, which can reduce debt burdens during economy-wide downturns, and tax policy, which can influence the incentives of firms to use debt financing.
- DOI
- 10.1016/j.jfineco.2015.06.009
- Volume
- 118
- Issue
- 3
- Pages
- 636-657
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref