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Financial Flexibility and Corporate Employment

Author

Listed:
  • Lester, Rebecca

    (Stanford Graduate School of Business)

  • Rouen, Ethan

    (Harvard Business School)

  • Williams, Braden

    (University of Texas)

Abstract

We study the role of financial flexibility on COVID-19 employment actions. Using daily data from March through May 2020 for 354 of the largest U.S. employers, we find that firms facing a negative demand shock were 28.8 percentage points more likely to reduce their workforce and 17.3 percentage points less likely to provide pay increases to frontline workers, compared to other sample firms. Pre-pandemic financial flexibility attenuates these effects, reducing the likelihood of workforce reductions by almost half. The role of financial flexibility is greatest in firms with better governance, a more asymmetric cost structure, and better treatment of workers.

Suggested Citation

  • Lester, Rebecca & Rouen, Ethan & Williams, Braden, 2021. "Financial Flexibility and Corporate Employment," Research Papers 3956, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:3956
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    File URL: https://www.gsb.stanford.edu/faculty-research/working-papers/financial-flexibility-corporate-employment
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    Cited by:

    1. Choi, Bong-Geun & Choi, Jung Ho & Malik, Sara, 2023. "Not just for investors: The role of earnings announcements in guiding job seekers," Journal of Accounting and Economics, Elsevier, vol. 76(1).

    More about this item

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General

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