Outside Employment Opportunities, Employee Productivity, and Debt Discipline

51 Pages Posted: 20 Mar 2008 Last revised: 11 Mar 2015

See all articles by Jayant R. Kale

Jayant R. Kale

Northeastern University

Harley E. Ryan

Georgia State University - Department of Finance

Lingling Wang

University of Connecticut - Department of Finance

Date Written: March 10, 2015

Abstract

We analyze how changes in labor market conditions influence the relation between a firm’s debt level and employee productivity. We document that better (worse) outside employment opportunities create a more negative (positive) relation between employee productivity and debt at both the firm and industry levels. Moreover, NAFTA, a quasi-natural experiment that affected employment opportunities in certain industries, resulted in a more positive productivity-leverage relation for firms in these industries. Our findings suggesting that outside employment opportunities affect the disciplining role of debt illustrate how labor market conditions impact the efficacy of corporate financial policies.

Keywords: Debt Discipline, Agency Theory, Outside Employment Opportunities, Employee Productivity

JEL Classification: G30, G32, G38

Suggested Citation

Kale, Jayant Raghunath and Ryan, Harley E. and Wang, Lingling, Outside Employment Opportunities, Employee Productivity, and Debt Discipline (March 10, 2015). Available at SSRN: https://ssrn.com/abstract=1022067 or http://dx.doi.org/10.2139/ssrn.1022067

Jayant Raghunath Kale

Northeastern University ( email )

Boston, MA 02115
United States

Harley E. Ryan (Contact Author)

Georgia State University - Department of Finance ( email )

University Plaza
35 Broad Street, Suite 1221
Atlanta, GA 30303-3083
United States
404-651-2674 (Phone)
404-651-2630 (Fax)

Lingling Wang

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

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