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Non-Compete Agreements and Capital Structure Decisions

Author

Listed:
  • Bektemir Ysmailov

    (Nazarbayev University, Graduate School of Business)

Abstract

This paper examines the impact of changes in the enforceability of non-compete agreements (NCAs) on capital structure decisions. Using a novel dataset of NCA enforceability reforms across U.S. states from 1992 to 2013, I employ a difference-in-differences methodology to establish that following an increase in the enforceability of NCAs, firms decrease their leverage. The findings are consistent with the managerial career concerns hypothesis: by restricting outside employment opportunities, heightened NCA enforceability increases managers' aversion to risk and financial distress, prompting more conservative capital structures. Cross-sectional evidence underscores the coexistence of both career concerns and proprietary information protection channels within the same empirical setting. This study provides robust evidence of how labor market frictions influence corporate financing policies, offering new insights into the interplay between managerial incentives and capital structure decisions.

Suggested Citation

  • Bektemir Ysmailov, 2024. "Non-Compete Agreements and Capital Structure Decisions," Working Papers 2024/02, Nazarbayev University, Graduate School of Business.
    • Handle: RePEc:asx:nugsbw:2024-02
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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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