Universität Bonn

Department of Economics

Edoardo Acabbi - Universidad Carlos III de Madrid

"Defusing Leverage: Liquidity Management and Labor Contracts"


Rigidities in firms' payroll adjustment amplify the impact of aggregate fluctuations on fundamentals. We analyze how firms use flexible contracts to decrease this pass-through. Leveraging unique Italian administrative data, we show that firms’ adoption of temporary contracts contributes to a reduction in their variability of cash flows and profits, particularly when their initial labor share is high. We then provide a causal identification of the effect for firms fundamental of a reform liberalizing the use of temporary contracts in 2001. We find that the liberalization of temporary contracts increased their adoption and led to a decline in average labor compensation. The reform translates into a substantial rise in profit margins and a reduction in the cross-sectional standard deviation of profits, but only among firms characterized by initially more rigid labor costs.

Additional information:

  • Speaker: Edoardo Acabbi
  • Time: Wednesday, 10.01.2024, 14:45 - 16:00
  • Location: Faculty Lounge, Room 0.036 / Online via Zoom
  • Further links:
  • Organizer: Finance Group
  • Contact:

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