EconPapers    
Economics at your fingertips  
 

Labor mobility and the cost of debt

Euikyu Choi

Journal of Economics and Business, 2020, vol. 111, issue C

Abstract: This paper empirically shows that the cost of debt financing is systematically higher for firms that operate in mobile labor markets. We posit two channels through which labor mobility could affect firms’ cost of debt: 1. higher default risk, due to an increase in cash flow volatility arising from the potential loss of valuable human capital assets, and 2. less pledgeable assets, given that a firm has limited control and ownership over the firm’s human capital. Using across U.S. state variations in the enforceability of non-compete agreements that restrict employee job switches as a proxy for anticipated labor mobility, and state-level reforms to non-compete laws to capture exogenous shocks to labor mobility, we find that labor mobility has a significantly positive relation with the credit spreads of U.S. corporate debt issued from 1990–2014. Moreover, our analysis reveals that the effect of labor mobility is greater for firms that are more reliant on human capital – i.e., high R&D firms and firms with greater organizational capital – which corroborates the main results. Overall, these findings suggest that investors price financial contracts by taking into account the risk that arises from labor mobility.

Keywords: Labor mobility; Labor markets; Labor law; Non-compete agreements; Cost of capital; Debt financing; Default risk; Firm risk; Human capital (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0148619519302991
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:111:y:2020:i:c:s0148619519302991

DOI: 10.1016/j.jeconbus.2020.105919

Access Statistics for this article

Journal of Economics and Business is currently edited by Emanuele Bajo and Moritz Ritter

More articles in Journal of Economics and Business from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2021-09-15
Handle: RePEc:eee:jebusi:v:111:y:2020:i:c:s0148619519302991