Employee Well-Being, Firm Leverage, and Bankruptcy Risk
32 Pages Posted: 27 Oct 2009
Date Written: October 27, 2009
Employees of liquidating firms are likely to lose income and non-pecuniary benefits of working for the firm, which makes bankruptcy costly for employees. This paper examines whether firms take these costs into account when deciding on the optimal amount of leverage. We find that firms with leading track records in employee well-being significantly reduce the probability of bankruptcy by operating with lower debt ratios. Moreover, we observe that firms with better employee track records have better credit ratings, even when we control for differences in firm leverage.
Keywords: Employee well-being, Capital structure, Bankruptcy risk, Corporate social responsibility
JEL Classification: G32, G33, J24
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