Supplemental Material for Investing for Keeps: Firms’ Prepandemic Investments in Human Capital Decreased Workforce Reductions Associated With COVID-19 Financial Pressures

Investing for keeps: Firms’ prepandemic investments in human capital decreased workforce reductions associated with COVID-19 financial pressures.

Journal of Applied Psychology ◽

10.1037/apl0001002 ◽

2021 ◽

Vol 106 (12) ◽

pp. 1785-1804

Author(s):

F. Scott Bentley ◽

Rebecca R. Kehoe ◽

Hyesook Chung

Keyword(s):

Human Capital ◽

Workforce Reductions ◽

Financial Pressures

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Capital Structure and a Firm's Workforce

Annual Review of Financial Economics ◽

10.1146/annurev-financial-110716-032519 ◽

2018 ◽

Vol 10 (1) ◽

pp. 387-412 ◽

Cited By ~ 12

Author(s):

David A. Matsa

Keyword(s):

Human Capital ◽

Labor Market ◽

Capital Structure ◽

Job Security ◽

Defined Benefit ◽

Financing Decisions ◽

Labor Market Frictions ◽

Workforce Reductions ◽

Defined Benefit Pensions ◽

Labor Negotiations

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.

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