Do unemployment benefits affect the choice of debt source?11I would like to acknowledge the financial support from Qatar University, QUUG-CBE-DFE-17/18-6

Hamdi Ben-Nasr

Journal of Corporate Finance, 2019, vol. 56, issue C, 88-107

Abstract: This study examines whether labor unemployment risk affects the choice of debt source. Specifically, we examine whether US unemployment insurance (UI) benefits, which reduce unemployment risk, lead to a heavy reliance on bank debt. Through difference-in-difference analysis, we find that firms in states with generous UI benefits tend to rely more on bank debt, supporting the monitoring avoidance channel. This finding is robust to a battery of robustness tests. We also find that the positive relationship between UI benefits and bank debt ratio is more pronounced in firms from highly unionized states, labor-intensive firms, and firms with higher asset substitution risk. Finally, we find that debt maturity (security) decreases (increases) when UI benefits increase.

Keywords: Unemployment risk; Labor unemployment insurance; Compensating wage differential; Bank debt; Public debt (search for similar items in EconPapers)
JEL-codes: G31 J31 J65 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:56:y:2019:i:c:p:88-107

DOI: 10.1016/j.jcorpfin.2019.01.006

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