Non-Compete Agreements and Capital Structure Decisions

2022; RELX Group (Netherlands); Linguagem: Inglês

10.2139/ssrn.4209165

ISSN

1556-5068

Autores

Bektemir Ysmailov,

Tópico(s)

State Capitalism and Financial Governance

Resumo

Executives 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.

Referência(s)
Altmetric
PlumX