Human capital,capital structure,and employee pay: An empirical analysis |
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| Authors: | Thomas J. Chemmanur Yingmei Cheng Tianming Zhang |
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| Affiliation: | 1. Boston College, Carroll School of Management, 440 Fulton Hall, Chestnut Hill, MA 02467, USA;2. The Florida State University, Department of Finance, USA;3. The Florida State University, Department of Accounting, USA |
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| Abstract: | We test the predictions of Titman (1984) and Berk, Stanton, and Zechner (2010) by examining the effect of leverage on labor costs. Leverage has a significantly positive impact on cash, equity-based, and total compensation of chief executive officers (CEOs). Compensation of new CEOs hired from outside the firm is positively related to prior-year firm leverage. In addition, leverage has a positive and significant impact on average employee pay. The incremental total labor expenses associated with an increase in leverage are large enough to offset the incremental tax benefits of debt. The empirical evidence supports the theoretical prediction that labor costs limit the use of debt. |
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| Keywords: | G32 |
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