EconPapers    
Economics at your fingertips  
 

Labor and Capital Dynamics under Financing Frictions

Ryan Michaels, T Beau Page and Toni Whited ()

Review of Finance, 2019, vol. 23, issue 2, 279-323

Abstract: We assemble a new, quarterly panel dataset that links firms’ investment and financing to their employment and wages. In the data, wages and leverage are negatively related, both cross-sectionally and within firms. This pattern contradicts models in which firms insure workers against unemployment risk. We reconcile this fact with a model that integrates factor adjustment frictions and wage bargaining with costly external financing. In the model, the probability of default rises with debt. Because default incurs deadweight costs, the expected surplus over which firms and workers bargain falls, thus depressing wages. We show that raising financing costs reduces employment and wages, in line with recent reduced-form evidence.

Keywords: Labor and capital dynamics; Financing frictions; Wage bargaining (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1093/rof/rfy020 (application/pdf)
Access to full text is restricted to subscribers.

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:oup:revfin:v:23:y:2019:i:2:p:279-323.

Ordering information: This journal article can be ordered from
http://www.oup.co.uk/journals

Access Statistics for this article

Review of Finance is currently edited by Josef Zechner and Marco Pagano

More articles in Review of Finance from European Finance Association Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2019-09-14
Handle: RePEc:oup:revfin:v:23:y:2019:i:2:p:279-323.