Human-Capital-Intensive Firms: Incentives and Capital Structure

43 Pages Posted: 31 Jul 2003

Date Written: June 2003


I study the incentives of nonmanagement key personnel in human-capital-intensive firms. I show that their compensation structure and hence their incentives depend on the firm's capital structure and top management compensation. The feasible set of renegotiation-proof contracts decreases as debt rises. Debt leads to inferior risk-sharing even if investments are efficient in equilibrium. Therefore, the optimal debt level decreases with the human-capital intensity of the firm. I find strong empirical evidence that there is a negative relation between leverage and human-capital intensity. Moreover, the more specific the firm's assets, the stronger becomes this negative relation.

Suggested Citation

Qian, Yiming, Human-Capital-Intensive Firms: Incentives and Capital Structure (June 2003). Available at SSRN: or

Yiming Qian (Contact Author)

University of Connecticut ( email )

2100 Hillside Road U-1041F, Room 452
Storrs, CT 06269
United States
860-486-2774 (Phone)

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