Labor and Finance: The Effect of Bank Relationships

Abstract We investigate whether firms’ number of credit relationships with financial institutions affects labor market outcomes. Using 5 million observations on matched and panel data from Brazil, we estimate IV regressions, employing exogenous variation in firm-lender due to nationwide bank M&A activity. Firms more employ workers pay higher wage bills. Credit availability, cost credit, institution heterogeneity are economic channels. The firm-level results translate into positive macroeconomic effects municipalities states. evidence is novel indicates the multiple outcomes an emerging economy.