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Human capital costs, firm leverage, and unemployment rates

  • Akyol, Ali C.
  • Verwijmeren, Patrick
Registered author(s):

    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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    File URL: http://www.sciencedirect.com/science/article/pii/S1042957313000168
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    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
    DOI: 10.1016/j.jfi.2013.04.003
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622875

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