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Wage Negotiations and Capital Structure: A Strategic Bargaining Approach

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  • Alberto Dalmazzo

Abstract

We analyse the relations between firm's debt and bargained wage level and its implications for the optimal choice of the capital structure. Similarly to Hart and Moore (1991), we place the analysis of the feasible debt contracts in a strategic bargaining setting, in which both the management and the workforce of the firm have human capital specificities in production. We obtain that debt repayments constrain wage levels, providing an advantage for debt financing. Moreover, either under investment can arise, due to wealth constraints, or on the contrary, firms may borrow more than what is required by the production process.

Suggested Citation

  • Alberto Dalmazzo, 1992. "Wage Negotiations and Capital Structure: A Strategic Bargaining Approach," CEP Discussion Papers dp0091, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp0091
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    Cited by:

    1. Ana María Sabater & Joaquina Laffarga, 2004. "Comportamiento Diario Del Mercado Continuo Español Ante Un Evento Laboral: Un Analisis Empirico," Working Papers. Serie EC 2004-19, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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