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Labor Mobility: Implications for Asset Pricing
Author(s) -
DONANGELO ANDRÉS
Publication year - 2014
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12141
Subject(s) - labor mobility , leverage (statistics) , operating leverage , flexibility (engineering) , shareholder , labour economics , business , stock (firearms) , capital asset pricing model , economics , industrial organization , finance , profitability index , computer science , engineering , mechanical engineering , corporate governance , management , machine learning
Labor mobility is the flexibility of workers to walk away from an industry in response to better opportunities. I develop a model in which labor flows make bad times worse for shareholders who are left with capital that is less productive. The model shows that firms face greater operating leverage by providing flexibility to mobile workers. I construct an empirical measure of labor mobility consistent with the model and document an economically significant cross‐sectional relation between mobility, operating leverage, and stock returns. I find that firms in mobile industries earn returns over 5% higher than those in less mobile industries.