The Effect of Capital Structure on Management and Employee Payments – The Perspective of Human Capital

• Main Authors: Chieh-YuanChen, 陳擷元
• Other Authors: Hsuan-Chu Lin
• Format: Others
• Language: en_US
• Published: 2015
• Online Access: http://ndltd.ncl.edu.tw/handle/g7y866

碩士 === 國立成功大學 === 財務金融研究所 === 103 === In this paper, we test the predictions of Titman (1984) and Berk, Stanton, and Zechner (2010), which indicate that firms with higher leverage will pay CEO and employee more. In addition, we use Altman Z-score to separate financially safe and financially distressed firms and examine whether firms utilize leverage as a bargaining tool especially in financially distressed firms. We use the publicly traded firms in America as our sample. The sample period of model of CEO compensation is from 2006 to 2013, and the sample period of model of employee pay is from 2001 to 2012. The empirical results show that firms with higher leverage indeed pay their CEO and employee more significantly to compensate their human capital risk. Furthermore, we observe that the impact of interaction between leverage and distressed firms on employee pay is significantly negative, indicating that firms with financially distress would use the leverage as a bargaining tool to offset the compensating effect comparing to safe firms. This study suggests that bringing human capital risk into consideration when making capital and compensation structure decisions is necessary.