Published in:US Census Bureau Center for Economic Studies Paper ; No. CES-WP-15-38
Extent:
1 Online-Ressource (52 p)
Language:
English
DOI:
10.2139/ssrn.2689865
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments November 1, 2015 erstellt
Description:
I examine how the labor market in which firms operate affects their capital structure decisions. Using the US Census Bureau data, I exploit a large plant opening as an abrupt increase in the size of a local labor market. I find that a new plant opening leads to a 2.6% to 3.9% increase in the debt-to-capital ratio of existing firms in the “winner” county relative to the “runner-up” choice. This result is consistent with larger labor markets making a job loss less costly, which in turn reduces indirect costs of financial distress. Moreover, this spillover effect is larger for firms 1) that have a larger fraction of employees in the affected county, 2) that employ the same type of workers as the new plant, and 3) that have larger unexploited benefits of debt