Employment stability and corporate cash holdings

Syungjin Han and Changhyun Kim

Applied Economics Letters, 2022, vol. 29, issue 21, 1991-1995

Abstract: This paper investigates how a firm’s employment stability affects the level of its cash holdings. We find that firms with high employment stability (as measured by one minus a firm’s employment elasticity with respect to its sales) maintain large cash holdings. The positive effect of employment stability on cash holdings is stronger for R&D intensive firms and firms with high firm-specific human capital. These results are consistent with theories predicting that firms hold cash to signal the credibility of their employment policies regarding job security.

Date: 2022
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DOI: 10.1080/13504851.2021.1967274

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