Entrepreneurs’ Diversification and Labor Income Risk

Jan Bena, Andrew Ellul, Marco Pagano and Valentina Rutigliano

No 20353, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Diversified entrepreneurs can better shield employees from income shocks. Using data on the universe of Canadian exporting firms and their owners, we find that firms with more diversified owners offer more stable jobs and earnings, as foreign exchange shocks have lower pass-through to layoffs and wages. These results also hold conditioning on shareholders’ wealth. Diversified owners absorb shocks by adjusting their own compensation and increasing firm leverage, while their diversification does not contribute to the transmission of shocks to non-exporting firms in their portfolios. The insurance they provide supports the retention of valuable human capital by reducing employee turnover.

JEL-codes: G32 J30 J63 L20 (search for similar items in EconPapers)
Date: 2025-06
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