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How Does Labor Mobility Affect Corporate Leverage and Investment?

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  • Sanati, Ali

Abstract

I develop a dynamic model to investigate how labor mobility impacts firms’ decisions. In the model, firms make investment and financing decisions, hire labor with different skill and mobility levels, and set wages through bargaining. The model predicts that, in response to an increase in labor mobility, high-skill firms operate with lower financial leverage, become less responsive to investment opportunities, and invest at lower rates, while low-skill firms remain unaffected. I confirm these predictions in the data using shocks to workers’ mobility across firms. The results are useful in understanding the effects of labor mobility changes driven by government policies or technological shocks, such as the rise of remote work.

Suggested Citation

  • Sanati, Ali, 2025. "How Does Labor Mobility Affect Corporate Leverage and Investment?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 60(3), pages 1146-1184, May.
    • Handle: RePEc:cup:jfinqa:v:60:y:2025:i:3:p:1146-1184_3
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