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Human capital costs, firm leverage, and unemployment rates

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  • Akyol, Ali C.
  • Verwijmeren, Patrick
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    Abstract

    Because 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 Info

    Article provided by Elsevier in its journal Journal of Financial Intermediation.

    Volume (Year): 22 (2013)
    Issue (Month): 3 ()
    Pages: 464-481

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    Handle: RePEc:eee:jfinin:v:22:y:2013:i:3:p:464-481

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    Web page: http://www.elsevier.com/locate/inca/622875

    Related research

    Keywords: Capital structure; Human capital costs; Bankruptcy costs; Unemployment rates;

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