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

Jie (Jack) He, Tao Shu and Huan Yang

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: Using employee job-level data, we empirically test the equilibrium matching between a firm�s debt usage and its employee job risk aversion (�clientele effect�), as predicted by the existing theories. We measure job risk aversion for a firm�s employees using their labor income concentration in the firm, calculated as the fraction of the employees� total personal labor income or total household labor income that is accounted for by their income from this particular firm. Using a sample of about 1,400 U.S. public firms from 1990-2008, we find a robust negative relation between leverage and employee job risk aversion, which is consistent with the clientele effect. Specifically, when a firm�s existing employees have higher labor income concentration in it, the firm tends to have lower contemporaneous and future leverage. Moreover, in terms of new hires, firms with lower leverage are more likely to recruit employees with less alternative labor income. Our results continue to hold after we control for firm fixed effects, other employee characteristics such as wages, gender, age, race, and education, and managerial risk attitudes. Further, the matching between a firm�s leverage and its workers� labor income concentration in it is more pronounced for firms with higher labor intensity and those in financial distress.

Keywords: clientele effect; personal labor income diversification; employee job risk aversion; leverage; capital structure; Longitudinal Employer-Household Dynamics database (search for similar items in EconPapers)
JEL-codes: G30 G32 G39 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2018-01
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-lma
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https://www2.census.gov/ces/wp/2018/CES-WP-18-01.pdf First version, 2018 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:18-01

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