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Labor and Finance: The Effect of Bank Relationships

Published online by Cambridge University Press:  02 November 2022

Patrick Behr ,
Lars Norden Open the ORCID record for Lars Norden [Opens in a new window]  and
Raquel de Freitas Oliveira
Patrick Behr
Affiliation:
Università della Svizzera Italiana patrick.behr74@gmail.com
Lars Norden*
Affiliation:
Brazilian School of Public and Business Administration, EPGE Brazilian School of Economics and Finance, and Getulio Vargas Foundation
Raquel de Freitas Oliveira
Affiliation:
Central Bank of Brazil raquel.oliveira@bcb.gov.br
*
lars.norden@fgv.br (corresponding author)
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Abstract

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We investigate whether firms’ number of credit relationships with financial institutions affects labor market outcomes. Using 5 million observations on matched credit and labor panel data from Brazil, we estimate IV regressions, employing exogenous variation in firm-lender relationships due to nationwide bank M&A activity. Firms with more relationships employ more workers and pay higher wage bills. Credit availability, cost of credit, and financial institution heterogeneity are economic channels. The firm-level results translate into positive macroeconomic effects in municipalities and states. The evidence is novel and indicates the positive effects of multiple relationships on labor market outcomes in an emerging economy.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 59 , Issue 1 , February 2024 , pp. 283 - 306
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

An earlier version of this article circulated as Banco Central do Brasil, Working Paper No. 534, Sept. 2020. Norden acknowledges financial support from Conselho Nacional de Desenvolvimento Científico e Tecnológico (CNPq) under grant no. 422229/2016-4. We thank an anonymous referee and Mara Faccio (the editor) for helpful comments and suggestions. We also thank Diana Bonfim, Murillo Campello, Jens Christensen, Rebel Cole, Bernardus van Doornik, Christoper Foote, Martin Hibbeln, Michal Kowalik, Simon Kwan, Sergio Lage, participants at the ASSA-IBEFA 2021 Meetings and the Southern Finance Association 2020 Conference, as well as seminar participants at the Central Bank of Brazil, Federal Reserve Bank of Boston, Federal Reserve Bank of San Francisco, and the University of Duisburg-Essen.

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