This paper provides an analysis of the impact of financial liberalisation on firms ’ organisations and labor demand. We argue that financial liberalisation tend to foster the adoption by firms of more profitable, yet more risky strategies. Because of product market competition, however, markups do not improve following firm liberalisation. As a result of firms being more flexible, labor market reallocations increase, firm level uncertainty rises, and consumers are better-off. Hence, this paper provides a financial rationale for the increase of firm level uncertainty that has recently been documented in France and the US, without introducing any improvement or worsening in firm governance. We then use French firm level data and the French financial reforms of the 1990s to provide empirical evidence in line with our theoretical prediction.
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