Growing Pains: The Effect of Labor Mobility on Corporate Investment over the Business Cycle

64 Pages Posted: 16 Nov 2020 Last revised: 10 Feb 2021

See all articles by John (Jianqiu) Bai

John (Jianqiu) Bai

Northeastern University - D'Amore-McKim School of Business

Ashleigh Eldemire

Haslam College of Business, University of Tennessee

Matthew Serfling

University of Tennessee

Date Written: February 9, 2021

Abstract

Procyclical growth opportunities and labor demand create time series-variation in the importance of labor mobility for corporate investment. Firms located in more mobile labor markets, captured by variation in state courts’ enforcement of covenants not to compete, increase investment rates more during economic expansions. This increased investment is associated with higher sales growth rates, profits, and valuations. Firms appear to finance this additional investment by raising debt and equity. Overall, our results suggest that access to a larger pool of workers with relevant experience reduces an important friction that dampens growth by constraining investment during economic expansions.

Keywords: Investment, Growth, Performance, Noncompete, Business cycles

JEL Classification: G31, G32, K12, K31, M5

Suggested Citation

Bai, John (Jianqiu) and Eldemire-Poindexter, Ashleigh and Serfling, Matthew, Growing Pains: The Effect of Labor Mobility on Corporate Investment over the Business Cycle (February 9, 2021). Available at SSRN: https://ssrn.com/abstract=3721708 or http://dx.doi.org/10.2139/ssrn.3721708

John (Jianqiu) Bai

Northeastern University - D'Amore-McKim School of Business ( email )

220 B RP
Boston, MA 02115
United States

Ashleigh Eldemire-Poindexter

Haslam College of Business, University of Tennessee ( email )

Knoxville, TN 37996
United States

Matthew Serfling (Contact Author)

University of Tennessee ( email )

Haslam College of Business
Knoxville, TN 37996
United States
865-974-1952 (Phone)

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