This article examines the effect of employment protection legislation (EPL) on small and medium-sized enterprise (SME) performance. Rather than relying on country-specific proxies for EPL, as is common in the literature, we compute firm-specific measures of a firm’s exposure to EPL by using a panel dataset of 13,112 Belgian SMEs for the period between 2000 and 2009. The empirical results show that firms perform better when faced with lower hiring and firing costs through the use of more blue-collar labour contracts. The evidence showing improved performance by firms that attempt to achieve greater flexibility by hiring more temporary workers is limited.
AbrahamSE (2004) An empirical assessment of employment-at-will: A tale of two states. Managerial Law46(6): 3–19.
2.
AcharyaVVBaghaiRPSubramanianKV (2014) Wrongful discharge laws and innovation. Review of Financial Studies27(1): 301–346.
3.
AddisonJTTeixeiraP (2003) The economics of employment protection. Journal of Labor Research24(1): 85–128.
4.
AlmeidaHCampelloM (2007) Financial constraints, asset tangibility, and corporate investment. Review of Financial Studies20(5): 1429–1460.
5.
AlmeidaRCarneiroP (2009) Enforcement of labor regulation and firm size. Journal of Comparative Economics37(1): 28–46.
6.
AndersonRCReebDM (2003) Founding-family ownership and firm performance: Evidence from the S&P 500. The Journal of Finance58(3): 1301–1327.
7.
ArcelusFMelgarejoZSimónK (2014) Managerial performance differences between labor-owned and participatory capitalist firms. Journal of Small Business Management52(4): 808–828.
8.
AtanassovJKimE (2009) Labor and corporate governance: International evidence from restructuring decisions. The Journal of Finance64(1): 341–374.
9.
AtkinsonCMallettOWapshottR (2016) ‘You try to be a fair employer’: Regulation and employment relationships in medium-sized firms. International Small Business Journal34(1): 16–33.
10.
AutorDHDonohueJJSchwabSJ (2006) The costs of wrongful-discharge laws. The Review of Economics and Statistics88(2): 211–231.
11.
AutorDHKerrWRKuglerAD (2007) Does employment protection reduce productivity? Evidence from US states. The Economic Journal117(521): 189–217.
12.
BassaniniANunziataLVennD (2009) Job protection legislation and productivity growth in OECD countries. Economic Policy24(58): 349–402.
13.
BauernschusterS (2013) Dismissal protection and small firms’ hirings: Evidence from a policy reform. Small Business Economics40(2): 293–307.
BentolilaSBertolaG (1990) Firing costs and labour demand: How bad is eurosclerosis?The Review of Economic Studies57(3): 381–402.
16.
BertolaG (1994) Flexibility, investment, and growth. Journal of Monetary Economics34(2): 215–238.
17.
BesleyTBurgessR (2004) Can labor regulation hinder economic performance? Evidence from India. Quarterly Journal of Economics119(1): 91–134.
18.
BirdRCKnopfJD (2009) Do wrongful-discharge laws impair firm performance?Journal of Law & Economics52(2): 197–222.
19.
BlanpainR (2010) Labour Law in Belgium. The Hague: Kluwer Law International.
20.
BlundellRGriffithRVan ReenenJ (1999) Market share, market value and innovation in a panel of British manufacturing firms. The Review of Economic Studies66(3): 529–554.
21.
BoniniSAlkanS (2012) The political and legal determinants of venture capital investments around the world. Small Business Economics39(4): 997–1016.
22.
BozkayaAKerrWR (2014) Labor regulations and European venture capital. Journal of Economics & Management Strategy23(4): 776–810.
23.
BuysschaertADeloofMJegersM. (2008) Is group affiliation profitable in developed countries? Belgian evidence. Corporate Governance: An International Review16(6): 504–518.
24.
CampelloM (2006) Debt financing: Does it boost or hurt firm performance in product markets?Journal of Financial Economics82(1): 135–172.
25.
CinganoFLeonardiMMessinaJ. (2010) The effects of employment protection legislation and financial market imperfections on investment: Evidence from a firm-level panel of EU countries. Economic Policy25(61): 117–163.
26.
CoreJEHolthausenRWLarckerDF (1999) Corporate governance, chief executive officer compensation, and firm performance. Journal of Financial Economics51(3): 371–406.
27.
CornellBShapiroAC (1987) Corporate stakeholders and corporate finance. Financial Management16: 5–14.
28.
CoudouelAPaciP (2006) Selected labor market reforms. In: CoudouelAPaternostroS (eds) Analyzing the Distributional Impact of Reforms. Washington, DC: The World Bank, pp.111–211.
29.
CuñatAMelitzMJ (2012) Volatility, labor market flexibility, and the pattern of comparative advantage. Journal of the European Economic Association10(2): 225–254.
30.
DewitGGörgHMontagnaC (2009) Should I stay or should I go? Foreign direct investment, employment protection and domestic anchorage. Review of World Economics145(1): 93–110.
31.
EngelsC (2002) Does the color of your collar really make a difference? The unconstitutional discrimination between white and blue-collar workers. In: BlanpainR (ed.) Labour Law, Human Rights and Social Justice. The Hague: Kluwer Law International, pp.283–295.
32.
FaulkenderMWSmithJM (2014) Taxes and Leverage at Multinational Corporations, Working Paper. College Park, MD: University of Maryland.
33.
GoddardJTavakoliMWilsonJO (2005) Determinants of profitability in European manufacturing and services: Evidence from a dynamic panel model. Applied Financial Economics15(18): 1269–1282.
34.
GouxDMaurinEPauchetM (2001) Fixed-term contracts and the dynamics of labour demand. European Economic Review45(3): 533–552.
35.
GustCMarquezJ (2004) International comparisons of productivity growth: The role of information technology and regulatory practices. Labour Economics11(1): 33–58.
36.
HarrisonJSWicksAC (2013) Stakeholder theory, value, and firm performance. Business Ethics Quarterly23(1): 97–124.
37.
HopenhaynHRogersonR (1993) Job turnover and policy evaluation: A general equilibrium analysis. Journal of Political Economy101(5): 915–938.
38.
IchinoARiphahnRT (2005) The effect of employment protection on worker effort: Absenteeism during and after probation. Journal of the European Economic Association3(1): 120–143.
39.
JavorcikBSSpatareanuM (2005) Do foreign investors care about labor market regulations?Review of World Economics141(3): 375–403.
40.
JensenMC (1986) Agency cost of free cash flow, corporate finance, and takeovers. American Economic Review76(2): 323–329.
41.
JensenMC (2001) Value maximization, stakeholder theory, and the corporate objective function. Journal of Applied Corporate Finance14(3): 8–21.
42.
KambourovG (2009) Labour market regulations and the sectoral reallocation of workers: The case of trade reforms. Review of Economic Studies76(4): 1321–1358.
43.
KleinknechtAOostendorpRMPradhanMP. (2006) Flexible labour, firm performance and the Dutch job creation miracle. International Review of Applied Economics20(2): 171–187.
44.
La PortaRLopez-de-SilanesFShleiferA. (1998) Law and finance. Journal of Political Economy106(6): 1113–1155.
45.
LaneJBroadmanHGSinghI (1998) Labor flexibility, ownership and firm performance in China. Review of Industrial Organization13(6): 621–635.
46.
LazearEP (1990) Job security provisions and employment. Quarterly Journal of Economics105(3): 699–726.
47.
LepakDPTakeuchiRSnellSA (2003) Employment flexibility and firm performance: Examining the interaction effects of employment mode, environmental dynamism, and technological intensity. Journal of Management29(5): 681–703.
48.
MartinsPS (2009) Dismissals for cause: The difference that just eight paragraphs can make. Journal of Labor Economics27(2): 257–279.
49.
MichieJSheehan-QuinnM (2001) Labour market flexibility, human resource management and corporate performance. British Journal of Management12(4): 287–306.
50.
MollyVLaverenEDeloofM (2010) Family business succession and its impact on financial structure and performance. Family Business Review23(2): 131–147.
51.
MyersSCMajlufNS (1984) Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics13(2): 187–221.
52.
NickellSLayardR (1999) Labor market institutions and economic performance. Handbook of Labor Economics3: 3029–3084.
53.
PetersenMA (2009) Estimating standard errors in finance panel data sets: Comparing approaches. Review of Financial Studies22(1): 435–480.
54.
PissaridesCA (2001) Employment protection. Labour Economics8(2): 131–159.
55.
RadulescuRRobsonM (2013) Does labour market flexibility matter for investment? A study of manufacturing in the OECD. Applied Economics45(5): 581–592.
56.
RobertsPW (1999) Product innovation, product-market competition and persistent profitability in the US pharmaceutical industry. Strategic Management Journal20(7): 655–670.
57.
RussoAPerriniF (2010) Investigating stakeholder theory and social capital: CSR in large firms and SMEs. Journal of Business Ethics91(2): 207–221.
58.
SimintziEVigVVolpinP (2015) Labor protection and leverage. Review of Financial Studies28(2): 561–591.
59.
ValverdeMTregaskisOBrewsterC (2000) Labor flexibility and firm performance. International Advances in Economic Research6(4): 649–661.
