Capital structure and a firm's workforce

David A. Matsa*

*Corresponding author for this work

Research output: Contribution to journalReview articlepeer-review

41 Scopus citations


While businesses require funding to start and grow, they also rely on human capital, which affects how they raise funds. Labor market frictions make financing labor different than financing capital. Unlike capital, labor cannot be owned and can act strategically. Workers face unemployment costs, can negotiate for higher wages, are protected by employment regulations, and face retirement risk. I propose using these frictions as a framework for understanding the unique impact of a firm's workforce on its capital structure. For instance, high leverage often makes managing labor more difficult by undermining employees' job security and increasing the need for costly workforce reductions. But firms can also use leverage to their advantage, such as in labor negotiations and defined benefit pensions. This research can help firms account for the needs and management of their workforce when making financing decisions.

Original languageEnglish (US)
Pages (from-to)387-412
Number of pages26
JournalAnnual Review of Financial Economics
StatePublished - Nov 1 2018


  • corporate debt
  • employment protection
  • labor bargaining
  • leverage
  • pensions
  • unemployment

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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