Human capital costs, firm leverage, and unemployment rates

Ali C. Akyol and Patrick Verwijmeren

Journal of Financial Intermediation, 2013, vol. 22, issue 3, 464-481

Abstract: 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.

Keywords: Capital structure; Human capital costs; Bankruptcy costs; Unemployment rates (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:22:y:2013:i:3:p:464-481

DOI: 10.1016/j.jfi.2013.04.003

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