The stability of dividends and wages: Effects of competitor inflexibility

Daniel A. Rettl, Alex Stomper and Josef Zechner

No 549, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: We analyze global data about electricity generation and document that the risk exposure of a firm's owners and its workers depends on competitors' ability or willingness to change their output in response to productivity shocks. Competitor inflexibility appears to be a risk factor: the sales of firms with more inflexible competitors respond more strongly to aggregate sales shocks. As a consequence, competitor inflexibility also affects the stability of firms' total wage- and dividend-payments. Firms with relatively flexible competitors appear to smoothen both wages and dividends, but an increase in competitor inflexibility is associated with less dividend-smoothing and more wagesmoothing. Our evidence supports the idea that labor productivity risk associated with competitor inflexibility should be borne by firms' shareholders, rather than by their workers.

Date: 2016
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:549

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