Entrepreneurs’ Diversification and Labor Income Risk

Jan Bena (), Andrew Ellul (), Marco Pagano () and Valentina Rutigliano ()
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Jan Bena: Sauder School of Business, University of British Columbia
Andrew Ellul: Indiana University, CSEF, CEPR and ECGI., https://csef.it/people/andrew-ellul/
Marco Pagano: University of Naples Federico II, CSEF and EIEF., https://csef.it/people/marco-pagano/
Valentina Rutigliano: Sauder School of Business, University of British Columbia

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: Entrepreneurs with more diversified portfolios of private firms provide more insurance against labor income risk: in a sample of over 524,000 Canadian firms and 858,000 owners, firms owned by such entrepreneurs offer more stable jobs and earnings to employees. In firms whose owners’ portfolios are one standard deviation more diversified, the passthrough rates of foreign sales shocks to layoffs and labor earnings are 13% and 41% lower, respectively. These entrepreneurs reduce their own compensation and increase firm leverage to fund labor income insurance. Enhanced insurance is associated with better retention of valuable human capital and fewer costly terminations, potentially improving firm performance.

Keywords: labor income risk; portfolio diversification; firm shocks. (search for similar items in EconPapers)
JEL-codes: G32 J30 J63 L20 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-ent, nep-lab and nep-sbm
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