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Employee Flexibility, Exogenous Risk, and Firm Value

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  • Au, Shiu-Yik
  • Dong, Ming
  • Tremblay, Andreanne

Abstract

We hypothesize that employee flexibility enhances firm value by helping firms respond to exogenous shocks. We estimate employee-flexibility scores through textual analysis of online job reviews, and we find that a high flexibility score leads to superior stock returns for firms exposed to external risk. During 2011–2017, the value-weighted hedge portfolio formed on employee flexibility earned a 5-factor annualized alpha of 9.5% during periods of high policy uncertainty. Earnings-announcement returns also suggest that investors do not fully value workforce flexibility. These results indicate that employee flexibility is a valuable corporate intangible that helps firms to manage risk during uncertain times.

Suggested Citation

  • Au, Shiu-Yik & Dong, Ming & Tremblay, Andreanne, 2021. "Employee Flexibility, Exogenous Risk, and Firm Value," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(3), pages 853-884, May.
    • Handle: RePEc:cup:jfinqa:v:56:y:2021:i:3:p:853-884_4
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    Cited by:

    1. Mary Becker & Alexander Cardazzi & Zachary McGurk, 2021. "Employee satisfaction and stock returns during the COVID-19 Pandemic," Working Papers 21-02, Department of Economics, West Virginia University.
    2. Becker, Mary & Cardazzi, Alexander & McGurk, Zachary, 2022. "Employee satisfaction and stock returns during the COVID-19 Pandemic," Journal of Behavioral and Experimental Finance, Elsevier, vol. 33(C).
    3. repec:msn:gcaocc:16-01 is not listed on IDEAS
    4. Chenyu Shan & Dragon Yongjun Tang, 2023. "The Value of Employee Satisfaction in Disastrous Times: Evidence from COVID-19," Review of Finance, European Finance Association, vol. 27(3), pages 1027-1076.

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