Local Labor Market Competition and Capital Structure Decisions

Using the near universe of online job postings from 2007 to 2019, we construct a firm-level metric of local labor market competition. We find that firms hiring in more competitive labor markets tend to have lower financial leverage. To establish causality, we exploit the establishment of Amazon HQ2 in Crystal City, Virginia as an exogenous shock to the local labor market competition, and find results that are consistent with our baseline result. Furthermore, the negative relation between labor market competition and leverage is more pronounced when the firm competes for high-skilled labor, high-paid jobs, and in the geographical regions with low GDP growth