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Labor Intensity and Expected Stock Returns

Author

Listed:
  • Gilles Chemla

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Peter Pontuch

    (DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper analyses the effects of labor intensity on a firm's operating risk and its expected stock returns. We isolate a pure labor intensity effect by using a relative measure with respect to the three-digit industry median level. We show that labor intensity is positively associated with operating leverage, at least in the small and medium-sized firms sub sample. Stock and portfolio returns of small and, to a lesser extent, mid cap firms are positively associated with labor intensity after controlling for traditional risk factors. In particular, the labor-induced operating leverage does not seem to be explained by the book-to-market factor. The relationship between labor intensity and stock returns is stronger in low wage industries and at medium levels of financial leverage.

Suggested Citation

  • Gilles Chemla & Peter Pontuch, 2012. "Labor Intensity and Expected Stock Returns," Post-Print hal-01634053, HAL.
    • Handle: RePEc:hal:journl:hal-01634053
    Note: View the original document on HAL open archive server: https://hal.science/hal-01634053
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