The Cross-Sectional Effect of Inflation on Corporate Investment and Employment

• Main Authors: KIM, Moon K., WU, Chunchi
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 1993
• Subjects: Relative factor price; capital intensity; elasticity of substitution; Business; Corporate Finance
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/859
• Institution: Singapore Management University

This paper examines the cross-sectional effect of inflation on the investment and employment decisions. The paper shows that more heavily capitalized firms tend to have a greater reduction in the capital-labor ratio during an inflationary period. The paper also shows that firms with a higher cost of debt to wage ratios and a larger amount of depreciation shelter tend to use more labor in the inflationary period. Empirical results are generally consistent with these arguments.