Hostname: page-component-78c5997874-mlc7c Total loading time: 0 Render date: 2024-11-09T03:47:46.009Z Has data issue: false hasContentIssue false
  • English
  • Français

How Does Labor Mobility Affect Corporate Leverage and Investment?

Published online by Cambridge University Press:  14 February 2024

Ali Sanati Open the ORCID record for Ali Sanati [Opens in a new window]
Ali Sanati*
Affiliation:
American University Kogod School of Business
*
asanati@american.edu (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

I develop a dynamic model to investigate how labor mobility impacts firms’ decisions. In the model, firms make investment and financing decisions, hire labor with different skill and mobility levels, and set wages through bargaining. The model predicts that, in response to an increase in labor mobility, high-skill firms operate with lower financial leverage, become less responsive to investment opportunities, and invest at lower rates, while low-skill firms remain unaffected. I confirm these predictions in the data using shocks to workers’ mobility across firms. The results are useful in understanding the effects of labor mobility changes driven by government policies or technological shocks, such as the rise of remote work.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 39
Creative Commons
Creative Common License - CCCreative Common License - BYCreative Common License - NCCreative Common License - ND
This is an Open Access article, distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives licence (http://creativecommons.org/licenses/by-nc-nd/4.0), which permits non-commercial re-use, distribution, and reproduction in any medium, provided that no alterations are made and the original article is properly cited. The written permission of Cambridge University Press must be obtained prior to any commercial use and/or adaptation of the article.
Copyright
© The Author(s), 2024. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

I am especially grateful to an anonymous referee, Hengjie Ai, Frederico Belo, Ran Duchin (the editor), Murray Frank, and Andrew Winton for detailed discussions and suggestions. I also thank Alan Benson, Anmol Bhandari, Briana Chang, Mark Egan, Bob Goldstein, Itay Goldstein, Janya Golubeva, Robert Hauswald, Loukas Karabarbounis, Lars-Alexander Kuehn, Erik Loualiche, Hamed Mahmudi, Eric McKee, Antonio Mello, Yoonsoo Nam, Anthony Rice, Juliana Salomao, Aaron Sojourner, Martin Szydlowski, Luke Taylor, Richard Thakor, Tracy Wang, Randy Wright, and seminar participants at American University, Cornerstone Research, Florida State University, University of Minnesota, University of Oklahoma, University of Wisconsin–Madison, 2018 Econometric Society (North American Summer Meetings), 2018 EFA, 2018 FMA, 2018 MFA, and 2017 AFA (PhD poster session) for helpful comments. I also thank David Porter at the Minnesota Supercomputer Institute for helpful discussions. I am responsible for all remaining errors.

References

Acemoglu, D., and Autor, D.. “Skills, Tasks and Technologies: Implications for Employment and Earnings.” Handbook of Labor Economics, 4 (2011), 1043–1171.CrossRefGoogle Scholar
Acemoglu, D., and Hawkins, W. B.. “Search with Multi-Worker Firms.” Theoretical Economics, 9 (2014), 583–628.CrossRefGoogle Scholar
Araujo, A.; Ferreira, R.; Lagaras, S.; Moraes, F.; Ponticelli, J.; and Tsoutsoura, M.. “The Labor Effects of Pro-Labor Bias in Bankruptcy.” NBER Working Paper No. 28640 (2021).CrossRefGoogle Scholar
Baghai, R. P.; Silva, R. C.; Thell, V.; and Vig, V.. “Talent in Distressed Firms: Investigating the Labor Costs of Financial Distress.” Journal of Finance, 76 (2021), 2907–2961.CrossRefGoogle Scholar
Baker, A. C.; Larcker, D. F.; and Wang, C. C.. “How Much Should We Trust Staggered Difference-in-Differences Estimates?”. Journal of Financial Economics, 144 (2022), 370–395.CrossRefGoogle Scholar
Belo, F.; Li, J.; Lin, X.; and Zhao, X.. “Labor-Force Heterogeneity and Asset Prices: The Importance of Skilled Labor.” Review of Financial Studies, 30 (2017), 3669–3709.CrossRefGoogle Scholar
Berk, J. B.; Stanton, R.; and Zechner, J.. “Human Capital, Bankruptcy, and Capital Structure.” Journal of Finance, 65 (2010), 891–926.CrossRefGoogle Scholar
Bronars, S. G., and Deere, D. R.. “The Threat of Unionization, the Use of Debt, and the Preservation of Shareholder Wealth.” Quarterly Journal of Economics, 106 (1991), 231–254.CrossRefGoogle Scholar
Cahuc, P., and Wasmer, E.. “Does Intrafirm Bargaining Matter in the Large Firm’s Matching Model?” Macroeconomic Dynamics, 5 (2001), 742.CrossRefGoogle Scholar
Castellaneta, F.; Conti, R.; Veloso, F. M.; and Kemeny, C. A.. “The Effect of Trade Secret Legal Protection on Venture Capital Investments: Evidence from the Inevitable Disclosure Doctrine.” Journal of Business Venturing, 31 (2016), 524–541.CrossRefGoogle Scholar
Chen, D.; Gao, H.; and Ma, Y.. “Human Capital-Driven Acquisition: Evidence from the Inevitable Disclosure Doctrine.” Management Science, 67 (2021), 4643–4664.CrossRefGoogle Scholar
Cooley, T. F., and Quadrini, V.. “Financial Markets and Firm Dynamics.” American Economic Review, 91 (2001), 1286–1310.CrossRefGoogle Scholar
Davis, S. J., and Haltiwanger, J.. “Labor Market Fluidity and Economic Performance.” NBER Working Paper No. 20479 (2014).CrossRefGoogle Scholar
Donangelo, A. “Labor Mobility: Implications for Asset Pricing.” Journal of Finance, 69 (2014), 1321–1346.CrossRefGoogle Scholar
Eisfeldt, A. L., and Papanikolaou, D.. “Organization Capital and the Cross-Section of Expected Returns.” Journal of Finance, 68 (2013), 1365–1406.CrossRefGoogle Scholar
Ellul, A., and Pagano, M.. “Corporate Leverage and Employees’ Rights in Bankruptcy.” Journal of Financial Economics, 133 (2019), 685–707.CrossRefGoogle Scholar
Elsby, M. W., and Michaels, R.. “Marginal Jobs, Heterogeneous Firms, and Unemployment Flows.” American Economic Journal: Macroeconomics, 5 (2013), 1–48.Google Scholar
European Economic and Social Committee. “EU Trade Unions Debate Fair Mobility and Strong Labour Rights in Bratislava.” Available at http://www.eesc.europa.eu/?i=portal.en.news.40590 (2016).Google Scholar
Garcia, D., and Norli, Ø.. “Geographic Dispersion and Stock Returns.” Journal of Financial Economics, 106 (2012), 547–565.CrossRefGoogle Scholar
Ghaly, M.; Dang, V. A.; and Stathopoulos, K.. “Cash Holdings and Labor Heterogeneity: The Role of Skilled Labor.” Review of Financial Studies, 30 (2017), 3636–3668.CrossRefGoogle Scholar
Gomes, J. F. “Financing Investment.” American Economic Review, 91 (2001), 1263–1285.CrossRefGoogle Scholar
Gomes, J. F., and Schmid, L.. “Levered Returns.” Journal of Finance, 65 (2010), 467–494.CrossRefGoogle Scholar
Gu, L.; Huang, R.; Mao, Y.; and Tian, X.. “How Does Human Capital Matter? Evidence from Venture Capital.” Journal of Financial and Quantitative Analysis, 57 (2022), 2063–2094.CrossRefGoogle Scholar
Hall, R. E., and Krueger, A. B.. “Evidence on the Incidence of Wage Posting, Wage Bargaining, and On-the-Job Search.” American Economic Journal: Macroeconomics, 4 (2012), 56–67.Google Scholar
Hennessy, C. A., and Whited, T. M.. “How Costly Is External Financing? Evidence from a Structural Estimation.” Journal of Finance, 62 (2007), 1705–1745.CrossRefGoogle Scholar
Jaggia, P. B., and Thakor, A. V.. “Firm-Specific Human Capital and Optimal Capital Structure.” International Economic Review, 35 (1994), 283–308.CrossRefGoogle Scholar
Jeffers, J. S. “The Impact of Restricting Labor Mobility on Corporate Investment and Entrepreneurship.” Review of Financial Studies, 37 (2023), 1–44.CrossRefGoogle Scholar
Kahnke, R. E.; Bundy, K. L.; and Liebman, K. A.. “Doctrine of Inevitable Disclosure.” Faegre & Benson LLP (2008), 1–44.Google Scholar
Klasa, S.; Ortiz-Molina, H.; Serfling, M.; and Srinivasan, S.. “Protection of Trade Secrets and Capital Structure Decisions.” Journal of Financial Economics, 128 (2018), 266–286.CrossRefGoogle Scholar
Kuehn, L.-A.; Simutin, M.; and Wang, J. J.. “A Labor Capital Asset Pricing Model.” Journal of Finance, 72 (2017), 2131–2178.CrossRefGoogle Scholar
Lagaras, S. “M&As, Employee Costs and Labor Reallocation.” Journal of Finance, available at https://ssrn.com/abstract=3560620 (2019).Google Scholar
Liu, Z. “Intellectual Property Allocation and Firm Investments in Innovation.” Working Paper, University of Houston (2017).Google Scholar
Lowry, S. “Inevitable Disclosure Trade Secret Disputes: Dissolutions of Concurrent Property Interests.” Stanford Law Review, 40 (1988), 519–544.CrossRefGoogle Scholar
Matsa, D. A. “Capital Structure as a Strategic Variable: Evidence from Collective Bargaining.” Journal of Finance, 65 (2010), 1197–1232.CrossRefGoogle Scholar
Michaels, R.; Page, T. B.; and Whited, T. M.. “Labor and Capital Dynamics Under Financing Frictions.” Review of Finance, 23 (2019), 279–323.CrossRefGoogle Scholar
Ochoa, M. “Volatility, Labor Heterogeneity and Asset Prices.” Federal Reserve Board Working Paper No. 2013-71 (2013).CrossRefGoogle Scholar
Perotti, E. C., and Spier, K. E.. “Capital Structure as a Bargaining Tool: The Role of Leverage in Contract Renegotiation.” American Economic Review, 83 (1993), 1131–1141.Google Scholar
Png, I. P., and Samila, S.. “Trade Secrets Law and Mobility: Evidence from ‘Inevitable Disclosure’,” available at https://ssrn.com/abstract=1986775 (2015).Google Scholar
Qiu, B., and Wang, T.. “Does Knowledge Protection Benefit Shareholders? Evidence from Stock Market Reaction and Firm Investment in Knowledge Assets.” Journal of Financial and Quantitative Analysis, 53 (2018), 1341–1370.CrossRefGoogle Scholar
Quadrini, V., and Sun, Q.. “Credit and Firm-Level Volatility of Employment.” Journal of the European Economic Association, 16 (2018), 1433–1475.CrossRefGoogle Scholar
Shen, M. “Skilled Labor Mobility and Firm Value: Evidence from Green Card Allocations.” Review of Financial Studies, 34 (2021), 4663–4700.CrossRefGoogle Scholar
Stole, L. A., and Zwiebel, J.. “Intra-Firm Bargaining Under Non-Binding Contracts.” Review of Economic Studies, 63 (1996), 375–410.CrossRefGoogle Scholar
Strebulaev, I. A., and Whited, T. M.. “Dynamic Models and Structural Estimation in Corporate Finance.” Foundations and Trends in Finance, 6 (2012), 1–163.CrossRefGoogle Scholar
Sun, Q., and Xiaolan, M. Z.. “Financing Intangible Capital.” Journal of Financial Economics, 133 (2019), 564–588.CrossRefGoogle Scholar
Titman, S. “The Effect of Capital Structure on a Firm’s Liquidation Decision.” Journal of Financial Economics, 13 (1984), 137–151.CrossRefGoogle Scholar
Wall Street Journal. “FTC Proposes Banning Noncompete Clauses for Workers.” available at https://www.wsj.com/articles/ftc-proposes-banning-noncompete-clauses-for-workers-11672900586 (2023).Google Scholar
White House Council of Economic Advisers. “Labor Market Monopsony: Trends, Consequences, and Policy Responses.” White House Council of Economic Advisers Issue Brief (2016).Google Scholar
Wiesner, R. M. “A State-by-State Analysis of Inevitable Disclosure: A Need for Uniformity and a Workable Standard.” Marquette Intellectual Property Law Review, 16 (2012), 211.Google Scholar
Zingales, L. “In Search of New Foundations.” Journal of Finance, 55 (2000), 1623–1653.CrossRefGoogle Scholar
Supplementary material: File

Sanati supplementary material

Sanati supplementary material
Download Sanati supplementary material(File)
File 355.8 KB