Human capital, bankruptcy and capital structure
By: Jonathan B. Berk, Richard Stanton, Josef Zechner.
Contributors: Stanton, Richard; Zechner, Josef.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13014.; Working paper series (National Bureau of Economic Research) -- working paper no. 13014.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 37
Subjects: Corporations -- Finance -- Econometric models; Human capital
Description: We derive a firm's optimal capital structure and managerial compensation contract when employees are averse to bearing their own human capital risk, while equity holders can diversify this risk away. In the presence of corporate taxes, our model delivers optimal debt levels consistent with those observed in practice. It also makes a number of predictions for the cross-sectional distribution of firm leverage. Consistent with existing empirical evidence, it implies persistent idiosyncratic differences in leverage across firms. An important new empirical prediction of the model is that, ceteris paribus, firms with more leverage should pay higher wages.
Notes: "April 2007"

Includes bibliographical references (p. 35-37).

Also available in PDF from the NBER world wide web site (www.nber.org).