Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
959981 | Journal of Financial Economics | 2013 | 25 Pages |
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.
Related Topics
Social Sciences and Humanities
Business, Management and Accounting
Accounting
Authors
Thomas J. Chemmanur, Yingmei Cheng, Tianming Zhang,