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Labour intensity and systematic risk

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  • Francisco, Paulo Morais

Abstract

We examine whether firms labour intensity raises systematic risk. Drawing on 12,250 listed, non‑financial companies from 93 countries, we analyse CAPM betas over five‑, three‑ and two‑year windows and separately evaluate their upside (β+) and downside (β−) components. OLS results show that a one‑standard‑deviation increase in labour intensity lifts the five‑year beta by 0.08 and loads disproportionately on downside risk. Instrumenting labour intensity in a 2SLS framework magnifies the effect, confirming a causal link. Overall, our evidence shows that labour‑intensive firms worldwide carry higher betas because fixed wage bills magnify operating leverage; the extra risk is most visible when markets decline, making a company’s workforce composition a key driver of its equity risk.

Suggested Citation

  • Francisco, Paulo Morais, 2025. "Labour intensity and systematic risk," Finance Research Letters, Elsevier, vol. 86(PB).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pb:s1544612325017295
    DOI: 10.1016/j.frl.2025.108475
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets

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