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Employee Flexibility, Exogenous Risk, and Firm Value

Published online by Cambridge University Press:  12 December 2019

Shiu-Yik Au ,
Ming Dong  and
Andreanne Tremblay Open the ORCID record for Andreanne Tremblay [Opens in a new window]
Shiu-Yik Au
Affiliation:
Au, [email protected], University of Manitoba Asper School of Business
Ming Dong
Affiliation:
Dong, [email protected], York University Schulich School of Business
Andreanne Tremblay*
Affiliation:
Tremblay, [email protected], Laval University Faculty of Business Administration
*
Tremblay, (corresponding author), [email protected]
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Abstract

We hypothesize that employee flexibility enhances firm value by helping firms respond to exogenous shocks. We estimate employee-flexibility scores through textual analysis of online job reviews, and we find that a high flexibility score leads to superior stock returns for firms exposed to external risk. During 2011–2017, the value-weighted hedge portfolio formed on employee flexibility earned a 5-factor annualized alpha of 9.5% during periods of high policy uncertainty. Earnings-announcement returns also suggest that investors do not fully value workforce flexibility. These results indicate that employee flexibility is a valuable corporate intangible that helps firms to manage risk during uncertain times.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 3 , May 2021 , pp. 853 - 884
Copyright
© The Author(s). Published by Cambridge University Press on behalf of Michael G. Foster School of Business, University of Washington 2019

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Footnotes

*

We thank Radhakrishnan Gopalan (the referee) for insightful suggestions; Kee-Hong Bae, Frederick Bereskin, Joey Choi, Nathan Dong, Marie Dutordoir, Campbell Harvey, David Hirshleifer, Marc Idelson, Mark Kamstra, Jisok Kang, Jongsub Lee, Tingting Liu, Tim Loughran, David Maslar, Ron Masulis, Lilian Ng, Jong-Min Oh, Jillian Popadak (Grennan), Gordon Roberts, Matthew Shaffer, Zheng Sun, Chris Veld, Jing Yang, and Xiaoyun Yu and seminar participants at the 2017 International Finance and Banking Society (IFABS) Ningbo Conference, 2017 Financial Management Association (FMA) Conference, 2017 Paris Financial Management Conference, 2018 Midwest Finance Association (MFA) Conference, 2018 Northern Finance Association (NFA) Conference, California State University, Fullerton, and York University for helpful comments; Omrane Guedhami for providing us with KLD MSCI data; and the Social Science and Humanities Research Council of Canada (SSHRC) for financial support.

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