Firms’ leverage and labour productivity: a quantile approach in Portuguese firms

Abstract

We show that the leverage of Portuguese firms tends to negatively affect its labour productivity for firms with relatively lower labour productivity but to positively affect this variable for firms in the right-hand side of the productivity distribution. This is particularly important in a country where labour productivity is persistently lower compared with the richer countries in Europe. Thus, we have concluded that, controlling for the usual effects, increasing leverage cannot be a solution for the less productive (and consequently the majority) of Portuguese firms.

Acknowledgements

Tiago Neves Sequeira gratefully acknowledges financial support from POCI/FCT–Fundação para a Ciência e Tecnologia, Portugal.

Notes

¹ The measure used was Interest Payments/Cash Flow.

² When TANG is introduced in a simple regression, results do not differ significantly.

³ One can argue that the sales value growth (GRW) effect is affected by a causality argument. Although, here causality is only addressed through controlling by other effects, the drop of this variable keeps the leverage coefficient almost the same.