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Human capital costs, firm leverage, and unemployment rates

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  • Akyol, Ali C.
  • Verwijmeren, Patrick

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.

Suggested Citation

  • Akyol, Ali C. & Verwijmeren, Patrick, 2013. "Human capital costs, firm leverage, and unemployment rates," Journal of Financial Intermediation, Elsevier, vol. 22(3), pages 464-481.
  • Handle: RePEc:eee:jfinin:v:22:y:2013:i:3:p:464-481 DOI: 10.1016/j.jfi.2013.04.003
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    References listed on IDEAS

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    Cited by:

    1. Chino, Atsushi, 2016. "Do labor unions affect firm payout policy?: Operating leverage and rent extraction effects," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 156-178.
    2. Bertay, Ata & Uras, Burak, 2016. "Leverage, Bank Employee Compensation and Institutions," Discussion Paper 2016-004, Tilburg University, Center for Economic Research.

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