NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Outside Purchase Contracts, Human Capital and Firm Capital Structure

S. Katie Moon, Gordon M. Phillips

NBER Working Paper No. 20579
Issued in October 2014
NBER Program(s):The Corporate Finance Program, The Industrial Organization Program

We examine the impact of outside purchase contracts on firm risk and firm capital structure. We find that firms with more outside purchase contracts have less risky cash flows. Despite these less risky cash flows, firms with these contracts also have less financial leverage especially when they operate in high value-added industries. Examining firm financing decisions, we document that firms with more outside contracts are more likely to issue private securities. Our results are consistent with firms with more outside purchase contracts using less leverage to decrease the expected costs of financial distress on their explicit and implicit contracting parties.

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Document Object Identifier (DOI): 10.3386/w20579

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