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Title: Employee Departure Costs and Capital Structure Decisions

Citation Type: Working Paper

Publication Year: 2018

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ISSN: 1556-5068

DOI: 10.2139/ssrn.3294629

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Abstract: I show that the risk of incurring large employee departure-related costs, unrelated to trade secret-related costs, impacts firms' capital structure decisions. I proxy for these costs with the cross-industry labor mobility of a firm's workers using a novel dynamic textual measure for this mobility based on network centrality. When firms face a higher risk of employee departures to firms in other industries, they maintain a lower debt ratio, hold more cash, and pay less dividends. The effect of cross-industry labor mobility on firms' capital structure is stronger for firms with more workers who are skilled or in managerial occupations, firms in labor-intensive industries, firms with greater hiring costs, financially constrained firms, and when workers have lower switching costs. Conversely, the effect of cross-industry labor mobility on firms' capital structure is weaker for firms in industries with higher relative performance and valuations. To infer causality, I make use of several different exogenous shocks to employee departure and job switching costs. Overall, my findings imply that firms choose more conservative financial policies when they face a greater risk of incurring large employee departure costs.

Url: https://ssrn.com/abstract=3294629

Url: https://www.ssrn.com/abstract=3294629

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Authors: Fathollahi, Maryam

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Data Collections: IPUMS CPS

Topics: Labor Force and Occupational Structure

Countries: United States