Wage Negotiations and Capital Structure: A Strategic Bargaining Approach

Alberto Dalmazzo

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: We analyse the relations between firm's debt and bargained wage level and its implications for the optimal choice of the capital structure. Similarly to Hart and Moore (1991), we place the analysis of the feasible debt contracts in a strategic bargaining setting, in which both the management and the workforce of the firm have human capital specificities in production. We obtain that debt repayments constrain wage levels, providing an advantage for debt financing. Moreover, either under investment can arise, due to wealth constraints, or on the contrary, firms may borrow more than what is required by the production process.

Date: 1992-08
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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp0091

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