Capital structure, pay structure and job termination (eBook, 2016) [WorldCat.org]
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Capital structure, pay structure and job termination

Author: Jason Allen; Bank of Canada,
Publisher: Ottawa, Ontario, Canada : Bank of Canada = Banque du Canada, 2016. ©2016
Series: Staff working paper (Bank of Canada), 2016-12.
Edition/Format:   eBook : Document : National government publication : EnglishView all editions and formats
Summary:
We develop a model to analyze the link between financial leverage, worker pay structure and the risk of job termination. Contrary to the conventional view, we show that even in the absence of any agency problem among workers, variable pay can be optimal despite workers being risk averse and firms risk neutral. We find that firms employing workers with safer projects (and lower probability of job termination) use  Read more...
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Details

Genre/Form: Electronic books
Material Type: Document, Government publication, National government publication, Internet resource
Document Type: Internet Resource, Computer File
All Authors / Contributors: Jason Allen; Bank of Canada,
OCLC Number: 948827672
Language Note: Includes abstracts in English and French.
Notes: Distributed by the Government of Canada Depository Services Program (Weekly acquisitions list 2016-15).
"March 2016."
Description: 1 online resource (iii, 36 pages)
Series Title: Staff working paper (Bank of Canada), 2016-12.
Responsibility: by Jason Allen, Financial Stability Department, Bank of Canada and James R. Thompson, University of Waterloo.
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Abstract:

We develop a model to analyze the link between financial leverage, worker pay structure and the risk of job termination. Contrary to the conventional view, we show that even in the absence of any agency problem among workers, variable pay can be optimal despite workers being risk averse and firms risk neutral. We find that firms employing workers with safer projects (and lower probability of job termination) use more variable compensation, and that leverage is strictly increasing in the amount of variable pay. These two results lead to the main insight of the paper: the more likely it is that a worker is terminated, the lower a firm's leverage. We provide empirical support for these predictions with a novel data set of all Canadian financial brokers and dealers. In the context of our empirical analysis, the model provides a novel mechanism to help explain why high leverage and high amounts of variable pay may be pervasive in financial relative to non-financial institutions.

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