Local Labor Market Competition and Capital Structure Decisions

Using the near universe of online job postings from 2007 to 2021, the authors construct a firm-level metric of local labor market concentration. They find that firms hiring in more concentrated labor markets tend to have higher financial leverage. Their finding is unlikely to be driven by the correlated labor market characteristics or unobserved local labor market shocks. The positive relation between labor market concentration and financial leverage is less pronounced when the firm hires workers in occupations with high labor mobility and workers with specialized skills and high skill transferability. To establish causality, the authors exploit the establishment of Amazon HQ2 in Crystal City, Virginia as a shock to the local labor market concentration, and authors' findings are consistent with their baseline results.