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008160404s2016    onc     ob   f000 0 eng d
040 |aCaOODSP|beng
041 |aeng|bfre
043 |an-cn---
0861 |aFB3-5/2016-12E-PDF
1001 |aAllen, Jason.
24510|aCapital structure, pay structure and job termination |h[electronic resource] / |cby Jason Allen and James R. Thompson.
260 |a[Ottawa] : |bBank of Canada, |c2016.
300 |aiii, 36 p. : |bfig., tables.
4901 |aStaff Working Paper, |x1701-9397 ; |v2016-12
500 |a"March 2016."
504 |aIncludes bibliographical references.
5203 |aWe 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.
69207|2gccst|aBusinesses
69207|2gccst|aDebt
69207|2gccst|aSalaries
69207|2gccst|aTermination of employment
7001 |aThompson, James R., |d1950-
7102 |aBank of Canada.
830#0|aStaff working paper (Bank of Canada)|x1701-9397 ; |v2016-12|w(CaOODSP)9.806221
85640|qPDF|s632 KB|uhttps://publications.gc.ca/collections/collection_2016/banque-bank-canada/FB3-5-2016-12-eng.pdf