Human capital costs, firm leverage, and unemployment rates
AbstractBecause bankruptcy is costly for employees, theoretical studies argue that firms with higher leverage have to pay their employees higher wages. In this paper we empirically test this prediction. We find that firm leverage is positively related to the wages of employees, both in the United States and in the Netherlands. In the United States, the positive relation between wages and leverage is strongest in the 21st century, which is a period that also shows a positive relation between wages and unemployment rates. We conclude that the human capital costs of bankruptcy are an important disadvantage of debt.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Financial Intermediation.
Volume (Year): 22 (2013)
Issue (Month): 3 ()
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Web page: http://www.elsevier.com/locate/inca/622875
Capital structure; Human capital costs; Bankruptcy costs; Unemployment rates;
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