The paper analyses the interaction between capital structure and employment decisions of firms. For this purpose, a theoretical model is developed in which a firm determines employment along an optimal path taking into account financial considerations. The empirical analysis using West German...

We present a microeconometric study of the impact of financial constraints on investment decisions of 755 quoted and unquoted West German firms over the period 1989 to 1994. The underlying theoretical model is based upon rational expectations and convex adjustment costs. The panel data estimates...