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Labor and the Market Value of the Firm

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Author Info
Monika Merz
Eran Yashiv

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Abstract

What role does labor play in firms' market value? We use a production-based asset pricing model with factor adjustment costs and forward-looking agents to explore this question. We posit that the hiring of labor is akin to investment in capital and that the two interact, with the interaction being a crucial determinant of the dynamic behavior of market value. Using aggregate US corporate sector data, we estimate firms' optimal hiring and investment decisions and the consequences for firms' value. (JEL E22, E24, G31, G32, M51)

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File URL: http://hdl.handle.net/10.1257/aer.97.4.1419
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File URL: http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=4&article=16&issue_date=September2007
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 97 (2007)
Issue (Month): 4 (September)
Pages: 1419-1431
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Handle: RePEc:aea:aecrev:v:97:y:2007:i:4:p:1419-1431

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Steven A. Barnett & Plutarchos Sakellaris, 1999. "A New Look At Firm Market Value, Investment, And Adjustment Costs," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 250-260, May. [Downloadable!] (restricted)
  2. Jason G. Cummins & Kevin A. Hassett & R. Glenn Hubbard, 1994. "A Reconsideration of Investment Behavior Using Tax Reforms as Natural Experiments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1994-2), pages 1-74. [Downloadable!]
  3. Simon Gilchrist & Charles P. Himmelberg, 1995. "Evidence on the Role of Cash Flow for Investment," Working Papers 95-01, New York University, Leonard N. Stern School of Business, Department of Economics.
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  4. Russell Cooper & Joao Ejarque, 2003. "Financial Frictions and Investment: Requiem in Q," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 710-728, October. [Downloadable!] (restricted)
  5. Shapiro, Matthew D, 1986. "The Dynamic Demand for Capital and Labor," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 513-42, August. [Downloadable!] (restricted)
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  6. R. Glenn Hubbard & Anil K Kashyap & Toni M. Whited, 1995. "Internal Finance and Firm Investment," NBER Working Papers 4392, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Simon Gilchrist & Charles Himmelberg, 1998. "Investment, Fundamentals and Finance," NBER Working Papers 6652, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1981-1), pages 67-140. [Downloadable!]
  9. Robert E. Hall, 2002. "Industry Dynamics with Adjustment Costs," NBER Working Papers 8849, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Russell W. Cooper & John C. Haltiwanger, 2000. "On the Nature of Capital Adjustment Costs," NBER Working Papers 7925, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Razzak, Weshah, 2008. "On The dynamic of search, matching and productivity in New Zealand and Australia," MPRA Paper 8262, University Library of Munich, Germany. [Downloadable!]
  2. Francois Gourio & Anil K Kashyap, 2007. "Investment Spikes: New Facts And A General Equilibrium Exploration," Boston University - Department of Economics - Working Papers Series WP2007-006, Boston University - Department of Economics. [Downloadable!]
    Other versions:
  3. M. Scarlato & M. Cenci, 2004. "Innovazione tecnologica e offerta di skills:una simulazione," Computational Economics 0401003, EconWPA. [Downloadable!]
  4. Renato Faccini & Salvador Ortigueira, 2008. "Labor-Market Volatility in the Search-and-Matching Model: The Role of Investment-Specific Technology Shocks," Economics Working Papers ECO2008/39, European University Institute. [Downloadable!]
  5. Hanno Lustig & Chad Syverson & Stijn Van Nieuwerburgh, 2009. "Technological Change and the Growing Inequality in Managerial Compensation," NBER Working Papers 14661, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Parantap Basu, 2007. "Understanding Labour Market Frictions: A Tobin’s Q Approach," Money Macro and Finance (MMF) Research Group Conference 2006 35, Money Macro and Finance Research Group. [Downloadable!]
  7. Nick Bloom, 2006. "The Impact of Uncertainty Shocks: Firm Level Estimation and a 9/11 Simulation," CEP Discussion Papers dp0718, Centre for Economic Performance, LSE. [Downloadable!]
  8. Matthias S. Hertweck, 2006. "Strategic Wage Bargaining, Labor Market Volatility, and Persistence," Economics Working Papers ECO2006/42, European University Institute. [Downloadable!]
  9. Parantap Basu, 2006. " Understanding Labour Market Frictions: A Tobin’s Q Approach," CDMA Conference Paper Series 0601, Centre for Dynamic Macroeconomic Analysis. [Downloadable!]
  10. Charlotta Groth, . "Estimating UK capital adjustment costs," Bank of England working papers 258, Bank of England. [Downloadable!]
  11. Michael Krause & David Lopez-Salido & Thomas Lubik, 2008. "Inflation Dynamics With Search Frctions: A Structural Econometric Analysis," CAMA Working Papers 2008-06, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
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  12. Nicholas Bloom, 2007. "The Impact of Uncertainty Shocks," NBER Working Papers 13385, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  13. Carlos Thomas, 2006. "Search and Matching Frictions and Optimal Monetary Policy," CEP Discussion Papers dp0743, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  14. Eran Yashiv, 2006. "Evaluating the Performance of the Search and Matching Model," IZA Discussion Papers 1931, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  15. Polder, Michael & Verick, Sher, 2004. "Dynamics of Labour and Capital Adjustment - A Comparison of Germany and the Netherlands," IZA Discussion Papers 1212, Institute for the Study of Labor (IZA). [Downloadable!]
  16. Yashiv, Eran, 2005. "Evaluating the Performance of the Search and Matching Model," CEPR Discussion Papers 5363, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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