A Theory of Net Debt and Transferable Human Capital

Lambrecht, B.M., and G. Pawlina, 2013, A Theory of Net Debt and Transferable Human Capital, Review of Finance 17 (1), 321-368

59 Pages Posted: 8 Jan 2009 Last revised: 21 Jul 2015

See all articles by Bart M. Lambrecht

Bart M. Lambrecht

University of Cambridge - Judge Business School; Centre for Economic Policy Research (CEPR)

Grzegorz Pawlina

Lancaster University - Department of Accounting and Finance

Date Written: January 9, 2012

Abstract

Traditional theories of capital structure do not explain the puzzling phenomena of zero-leverage firms and negative net debt ratios. We develop a theory where firms adopt a net debt target that acts as a balancing variable between equityholders and managers. Negative (positive) net debt occurs in human (physical) capital intensive industries. Negative net debt arises because tradeable claims cannot be issued against transferable human capital. Heterogeneity in capital structure occurs when firms have debt that is not fully collateralized. Physical capital intensive firms take on high leverage but may underlever to avoid bankruptcy costs. This creates excess rents for managers (even if the supply of human capital is competitive) because wealth constraints prevent managers from co-investing.

Keywords: capital structure, net debt, human capital

JEL Classification: G31, G32

Suggested Citation

Lambrecht, Bart and Pawlina, Grzegorz, A Theory of Net Debt and Transferable Human Capital (January 9, 2012). Lambrecht, B.M., and G. Pawlina, 2013, A Theory of Net Debt and Transferable Human Capital, Review of Finance 17 (1), 321-368. Available at SSRN: https://ssrn.com/abstract=1323855 or http://dx.doi.org/10.2139/ssrn.1323855

Bart Lambrecht (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
44-(0)-1223-339700 (Phone)
44-(0)-1223-339701 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Grzegorz Pawlina

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom
+ 44 1524 592834 (Phone)
+ 44 1524 847321 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
274
Abstract Views
1,419
rank
115,753
PlumX Metrics