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- Title
Hidden Debt and the Selectivity of Professional Partnerships.
- Authors
Wilson, Linus
- Abstract
Levin and Tadelis (2005) argue that the partnership form is a signal to uninformed clients that the firm will be selective about the professionals it hires. In contrast, this paper shows that increases in debt obligations cause partnerships to lower their hiring standards. If debt levels are not observed by clients, then partnerships are nearly as profitable and as selective as corporations. Financial transaction costs cause partnerships to be more selective than corporations. Large expansions in the ranks of senior employees will be more costly to partnerships than to corporations when there are costs to issuing debt. The Goldman Sachs IPO is discussed in light of this result. Finally, credit constraints can raise clients' expectations for the quality of the partners and the profitability of the partnership.
- Subjects
BUSINESS partnerships; EMPLOYEE selection; GOLDMAN Sachs Group Inc.; ACCOUNTS payable; BREAK-even analysis; BUSINESS forecasting
- Publication
Quarterly Journal of Finance & Accounting, 2008, Vol 47, Issue 4, p25
- ISSN
1939-8123
- Publication type
Article