Labor heterogeneity, labor adjustment costs, and externally financed firm growth

Enxi An and Kenneth Yung

International Review of Economics & Finance, 2025, vol. 97, issue C

Abstract: •Because skilled workers entail higher hiring and firing expenses, firms tend to retain skilled workers in the face of the high labor adjustment costs (LACs).•The retention of skilled workers imposes inflexibility on business operations and exposes firms to cash flow shocks.•Firms with high LACs hoard precautionary cash in the face of higher cash flow risk.•We find a positive relationship between LACs and externally financed firm growth.•Equity is the major source of external funds for firm growth in the face of high LACs.•The retention of skilled workers elevates conflicts between financial and non-financial stakeholders of the firm.•Ineffective monitoring is a channel connecting LACs and externally financed growth.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:97:y:2025:i:c:s1059056024008062

DOI: 10.1016/j.iref.2024.103814

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