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Entrepreneurs’ Diversification and Labor Income Risk

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Abstract

Diversified entrepreneurs can better shield employees from income shocks. Using data on the universe of Canadian exporting firms and their owners, we find that firms with more diversified owners offer more stable jobs and earnings, as foreign exchange shocks have lower pass-through to layoffs and wages. These results also hold conditioning on shareholders’ wealth. Diversified owners absorb shocks by adjusting their own compensation and increasing firm leverage, while their diversification does not contribute to the transmission of shocks to non-exporting firms in their portfolios. The insurance they provide supports the retention of valuable human capital by reducing employee turnover.

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  • Jan Bena & Andrew Ellul & Marco Pagano & Valentina Rutigliano, 2025. "Entrepreneurs’ Diversification and Labor Income Risk," CSEF Working Papers 754, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 07 Oct 2025.
    • Handle: RePEc:sef:csefwp:754
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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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