Cash Holdings and Labor Heterogeneity: The Role of Skilled Labor

Mohamed Ghaly, Viet Dang and Konstantinos Stathopoulos

The Review of Financial Studies, 2017, vol. 30, issue 10, 3636-3668

Abstract: Firms differ in their dependence on skilled labor and face labor adjustment costs that increase with their workers’ skill level. We show that firms with a higher share of skilled workers, and thus less flexibility to adjust their labor demand in response to cash flow shocks, hold more precautionary cash. The effect of labor skills on cash holdings is more pronounced for financially constrained firms and varies with exogenous differences in firing and hiring costs. We address endogeneity concerns by using subsamples of firms with reasonably similar characteristics, propensity score matching, and a quasi-experimental shock to labor markets. Received March 21, 2014; editorial decision February 21, 2017 by Editor David Denis.

JEL-codes: G32 J24 M54 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (74)

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