This paper analyses how financial and labor market imperfections jointly influence investment. The contemporaneous presence of imperfections gives rise to a negative correlation between EPL and investment. Our results support the policies promoted by European institutions to reform both markets.

This paper aims at analyzing the impact of Employment Protection Legislation (EPL) on firms' investment policies in the contemporaneous presence of financial imperfections. Our results show that investment is significantly affected by the presence of both market imperfections; they are robust to...