Labor Intensity and Expected Stock Returns

Gilles Chemla and Peter Pontuch
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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

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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.

Keywords: operating leverage; expected stock returns; cross-section of stock returns; labor intensity (search for similar items in EconPapers)
Date: 2012-06
Note: View the original document on HAL open archive server: https://hal.science/hal-01634053v1
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Published in 2012 FMA European Conference, Jun 2012, Istanbul, Turkey

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