Financial Flexibility and Corporate Employment

Rebecca Lester, Ethan Rouen and Braden Williams
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Rebecca Lester: Stanford Graduate School of Business
Ethan Rouen: Harvard Business School
Braden Williams: University of Texas

Research Papers from Stanford University, Graduate School of Business

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.

JEL-codes: G31 J01 J20 J30 M40 M50 (search for similar items in EconPapers)
Date: 2021-04
New Economics Papers: this item is included in nep-cfn
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3956

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