How Does Labor Market Size Affect Firm Capital Structure? Evidence from Large Plant Openings

Hyunseob Kim

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: I examine how the labor market in which firms operate affects their capital structure decisions. Using the US Census Bureau data, I exploit a large plant opening as an abrupt increase in the size of a local labor market. I find that a new plant opening leads to a 2.6% to 3.9% increase in the debt-to-capital ratio of existing firms in the “winner” county relative to the “runner-up” choice. This result is consistent with larger labor markets making a job loss less costly, which in turn reduces indirect costs of financial distress. Moreover, this spillover effect is larger for firms 1) that have a larger fraction of employees in the affected county, 2) that employ the same type of workers as the new plant, and 3) that have larger unexploited benefits of debt.

Pages: 52 pages
Date: 2015-11
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Citations: View citations in EconPapers (7)

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https://www2.census.gov/ces/wp/2015/CES-WP-15-38.pdf First version, 2015 (application/pdf)

Related works:
Journal Article: How does labor market size affect firm capital structure? Evidence from large plant openings (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:15-38

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