Financial Conservatism: Excessive Prudence or Smart Anticipation?
24 Pages Posted: 12 Feb 2018
Date Written: February 8, 2018
Abstract
This article aims to analyze the phenomenon of financial conservatism in firms’ capital structures and relate it to their employment variation for a sample of Spanish companies during the 2008-2013 period. Financial conservatism is described as following a low-leverage/high cash no-short-term capital structure policy. We use Jovanovic’s model (1982) that relates growth, age, and size, to which we add a dummy indicating financial conservatism. As the growth of a company is measured as its number of employees’ variation, we are ultimately analyzing how financial conservatism affects job creation. Evidence shows that a financially conservative policy at a given company is a positive factor for job creation.
Keywords: financial conservatism, capital structure, growth, labor demand
JEL Classification: G32, J23, O16
Suggested Citation: Suggested Citation