Capital structure and labour demand: further evidence

Abstract

This paper provides further evidence on the relationship between a firm's capital structure and its labour demand. This study estimates dynamic labour demand equations using firm-level panel data for firms in the electronics sector in Ireland for the period 1982 to 1995. These results suggest that labour demand is not affected by a firm's capital structure, proxied by its debt-to-asset ratio. This may give statistical support to the Modigliani-Miller theorem, which conjectures that the market value of a firm is not influenced by its capital structure, implying that a firm's labour demand decision is independent of capital structure.