This paper provides a theoretical framework which analyses the relationship between the duration of labor contracts and that of financial contracts within a firm. The model predicts a positive correlation between the durations of the two types of contracts. Also, we empirically test the predictions of our model using data from the Bank of Spain Central de Balances for the period 1983-95. Strong evidence that supports the complementarity in the duration of firms contracts is found.

Key words: labor contracts, financial contracts, contract duration.
JEL classification: G32, J21.