External Financing, Technological Changes, and Employees

Abstract

Using exogenous shocks on the ability to issue seasoned equity offerings (SEOs), we show SEOs lead to a higher employee skill composition, i.e., a lower (higher) proportion of low (high) skilled workers. Low-skilled workers decrease more than high-skilled workers increase, leading to lower firm-level employment. These effects are more significant when firms invest more in technology following SEOs and face greater financial constraints before SEOs, suggesting SEOs relieve budget constraints on technology investments. These findings demonstrate that while external equity financing helps upgrade technology to improve productivity, it has a dark side for low-skilled workers.