Employee Flexibility, Exogenous Risk, and Firm Value

Journal of Financial and Quantitative Analysis (Forthcoming)

59 Pages Posted: 12 Dec 2016 Last revised: 7 Jul 2020

See all articles by Shiu-Yik Au

Shiu-Yik Au

University of Manitoba - Asper School of Business

Ming Dong

York University - Schulich School of Business

Andreanne Tremblay

Université Laval - Département de Finance et Assurance

Date Written: October 30, 2019

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 find 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 five-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.

Keywords: employee flexibility, exogenous risk, intangibles, stock returns, textual analysis

JEL Classification: G30, G34, D22, M14

Suggested Citation

Au, Shiu-Yik and Dong, Ming and Tremblay, Andreanne, Employee Flexibility, Exogenous Risk, and Firm Value (October 30, 2019). Journal of Financial and Quantitative Analysis (Forthcoming), Available at SSRN: https://ssrn.com/abstract=2883353 or http://dx.doi.org/10.2139/ssrn.2883353

Shiu-Yik Au (Contact Author)

University of Manitoba - Asper School of Business ( email )

181 Freedman Crescent
Winnipeg, Manitoba R3T 5V4
Canada
(204) 474-9783 (Phone)

Ming Dong

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext. 77945 (Phone)
416-736-5687 (Fax)

Andreanne Tremblay

Université Laval - Département de Finance et Assurance ( email )

Pavillon Palasis-Prince
Quebec G1K 7P4
Canada

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