Human Capital, Bankruptcy and Capital Structure

Jonathan B. Berk, Richard Stanton and Josef Zechner

No 13014, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We derive a firm's optimal capital structure and managerial compensation contract when employees are averse to bearing their own human capital risk, while equity holders can diversify this risk away. In the presence of corporate taxes, our model delivers optimal debt levels consistent with those observed in practice. It also makes a number of predictions for the cross-sectional distribution of firm leverage. Consistent with existing empirical evidence, it implies persistent idiosyncratic differences in leverage across firms. An important new empirical prediction of the model is that, ceteris paribus, firms with more leverage should pay higher wages.

JEL-codes: G3 G32 G33 J24 J3 (search for similar items in EconPapers)
Date: 2007-04
New Economics Papers: this item is included in nep-bec and nep-hrm
Note: AP CF
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Citations: View citations in EconPapers (6)

Published as Berk, Jonathan B., Richard Stanton,and Josef Zechner. "Human Capital, Bankruptcy and Capital Structure." Journal of Finance 65, 3 (June 2010): 891-926.

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Journal Article: Human Capital, Bankruptcy, and Capital Structure (2010)
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