The Employee Clientele of Corporate Leverage: Evidence from Family Labor Income Diversification

57 Pages Posted: 5 Dec 2016 Last revised: 18 May 2020

See all articles by Jie He

Jie He

University of Georgia - Department of Finance

Tao Shu

The Chinese University of Hong Kong, Shenzhen; Shenzhen Finance Institute

Huan Yang

University of Massachusetts Amherst - Department of Finance

Date Written: May 16, 2020

Abstract

Using proprietary employer-employee matched data of the U.S. Census Bureau, we measure individual workers’ risk tolerance towards their jobs by their family labor income diversification, and formally test the firm-level equilibrium matching between capital structure and employees’ job risk attitudes (the “clientele effect”). Consistent with theories, we find a robust, positive relation between a firm’s debt usage and its employees’ family labor income diversification. This relation is stronger for firms with higher labor intensity and those in financial distress. For identification, we exploit the quasi-natural experiment of California Paid Family Leave Legislation. Further, we find that higher-leverage firms recruit new employees with greater labor income diversification.

Keywords: clientele effect, family labor income diversification, employee job risk aversion, leverage, capital structure

JEL Classification: G30, G32, G39

Suggested Citation

He, Jie and Shu, Tao and Yang, Huan, The Employee Clientele of Corporate Leverage: Evidence from Family Labor Income Diversification (May 16, 2020). Available at SSRN: https://ssrn.com/abstract=2880187 or http://dx.doi.org/10.2139/ssrn.2880187

Jie He (Contact Author)

University of Georgia - Department of Finance ( email )

B318 Amos Hall
Terry College of Business, University of Georgia
Athens, GA 30602-6253
United States

Tao Shu

The Chinese University of Hong Kong, Shenzhen ( email )

Shenzhen Finance Institute ( email )

Huan Yang

University of Massachusetts Amherst - Department of Finance ( email )

121 Presidents Drive
Amherst, MA 01003
United States

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