Human Capital, Capital Structure, Employee Pay: Empirical Evidence from Pakistan
This study examines effect of leverage on labor costs there by testing predictions of Titman (1984) and Berk, Stanton and Zechner (2010). The study covers period 2009 to 2013 for which firm level data of 84 non financial companies listed on Karachi Stock Exchange selected on the basis of data availability were examined using ordinary least square regression. Leverage is measured by debt to equity ratio of firm while labor costs considered as labor intensity are the total of salaries expense of the firm divided by total assets of firm. Influence of controlled variable like size of firm, Market to Book ratio, Physical capital intensity and Earning of firm per Asset is also investigated. Results reveal that in overall analysis leverage does not impact labor costs’ thereby stating that prediction of Titman (1984) and Berk, Stanton and Zechner (2010) are not applicable in Pakistani context because of the unemployment conditions, ownership structure and level of corporate governance in the country.
