Capital Costs, Firm Leverage, and Unemployment Rates

Research output: Contribution to journalArticleAcademicpeer-review

9 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)464-481
Number of pages18
JournalJournal of Financial Intermediation
Volume22
Issue number3
DOIs
Publication statusPublished - 2013

Fingerprint

Dive into the research topics of 'Capital Costs, Firm Leverage, and Unemployment Rates'. Together they form a unique fingerprint.

Cite this