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Do unemployment benefits affect the choice of debt source?11I would like to acknowledge the financial support from Qatar University, QUUG-CBE-DFE-17/18-6

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  • Ben-Nasr, Hamdi

Abstract

This study examines whether labor unemployment risk affects the choice of debt source. Specifically, we examine whether US unemployment insurance (UI) benefits, which reduce unemployment risk, lead to a heavy reliance on bank debt. Through difference-in-difference analysis, we find that firms in states with generous UI benefits tend to rely more on bank debt, supporting the monitoring avoidance channel. This finding is robust to a battery of robustness tests. We also find that the positive relationship between UI benefits and bank debt ratio is more pronounced in firms from highly unionized states, labor-intensive firms, and firms with higher asset substitution risk. Finally, we find that debt maturity (security) decreases (increases) when UI benefits increase.

Suggested Citation

  • Ben-Nasr, Hamdi, 2019. "Do unemployment benefits affect the choice of debt source?11I would like to acknowledge the financial support from Qatar University, QUUG-CBE-DFE-17/18-6," Journal of Corporate Finance, Elsevier, vol. 56(C), pages 88-107.
    • Handle: RePEc:eee:corfin:v:56:y:2019:i:c:p:88-107
    DOI: 10.1016/j.jcorpfin.2019.01.006
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    More about this item

    Keywords

    Unemployment risk; Labor unemployment insurance; Compensating wage differential; Bank debt; Public debt;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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