Non-Compete Agreements and Capital Structure Decisions
2022; RELX Group (Netherlands); Linguagem: Inglês
10.2139/ssrn.4209165
ISSN1556-5068
Autores Tópico(s)State Capitalism and Financial Governance
ResumoExecutives choose more conservative capital structures when they face greater unemployment risk due to mobility restrictions. Following an increase in the enforceability of non-compete agreements (NCAs), which exogenously increases executives’ unemployment risk by limiting their outside options, firms decrease their leverage. The effect is stronger for firms with a greater potential to reduce distress risk. For firms, increased enforceability of NCAs reduces the risks of losing key human capital and proprietary information to rivals. As such, in our setting, the interests of the manager and the firm are in conflict with the former dominating capital structure decisions. Our results point to the emergence of a risk-related agency conflict stemming from inflexible labor markets.
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