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Journal of Financial Intermediation Vol. 22 No. 3 2013

Human capital costs, firm leverage, and unemployment rates

Ali C. Akyol1; Patrick Verwijmeren2,3,4,1

1 The University of Melbourne · 2 Erasmus University Rotterdam · 3 University of Glasgow · 4 Tinbergen Institute

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.

DOI
10.1016/j.jfi.2013.04.003
Volume
22
Issue
3
Pages
464-481
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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