Does a Change in the Information Environment Affect Labor Adjustment Costs?
45 Pages Posted: 5 Oct 2018 Last revised: 30 Jun 2020
Date Written: October 25, 2019
We consider how a firm’s information environment impacts an index of three proxies for the costs firms incur when adjusting their workforce. We show companies with less information asymmetry have lower labor adjustment costs (LACs). Moreover, this relation is stronger for firms with lower financing constraints and stronger financial performance and growth, which suggests these attributes are particularly appealing to employees. Our difference-in-differences tests based on two exogenous asymmetric information shocks around broker mergers and closures, and decimalization indicate the link is likely causal. Finally, we show that LACs are an important channel through which information asymmetry impacts firm value.
Keywords: Information Environment, Information Asymmetry, Labor Adjustment Costs
JEL Classification: G11, J20
Suggested Citation: Suggested Citation