Inalienable Human Capital and Inevitable Corporate Payouts

ABSTRACT We highlight that the inalienable nature of human capital can crucially determine the division of economic gains between shareholders and other counterparts in view of corporate payouts. Exploiting the staggered rejections of the inevitable disclosure doctrine (IDD) across 15 US states as exogenous shocks that potentially increase the mobility and bargaining power of key talents, we find that treatment firms increase payouts relative to control firms following those events. The baseline effects are more pronounced among firms that are more reliant on key human capital, have better corporate governance and stronger financial conditions, and are faced with greater product market competition. These findings suggest that higher payouts enable shareholders to deter the capture of economic rents by key talents who threaten to leave. That is, due to shareholders’ counteraction, the inalienable nature of key human capital, a subgroup of labor, may unintendedly result in an unfavorable division of economic gains for labor as a whole.