The Effect of Labor Mobility on Corporate Investment and Performance over the Business Cycle

67 Pages Posted: 16 Nov 2020 Last revised: 17 Apr 2023

See all articles by John (Jianqiu) Bai

John (Jianqiu) Bai

Northeastern University - D’Amore-McKim School of Business

Ashleigh Eldemire-Poindexter

Haslam College of Business, University of Tennessee

Matthew Serfling

University of Tennessee; European Corporate Governance Institute (ECGI)

Date Written: April 14, 2023

Abstract

We show that time-series variation in investment opportunities and labor demand create heterogeneity in the effects of labor mobility on corporate investment over the business cycle. To isolate variation in labor mobility, we create an annual state-level index from 1984 through 2017 that captures the degree to which state courts enforce covenants not to compete. We find that firms located in more mobile labor markets increase investment rates more during economic expansions but have similar investment rates during periods of low or negative growth. This increased investment during expansions is greater for firms that rely more on recruiting skilled and experienced workers to grow their businesses, and it translates into higher sales growth rates, profits, and valuations. Overall, our results suggest that the benefits of being able to recruit qualified workers with relevant experience during expansions outweigh the costs associated with losing key workers.

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

JEL Classification: G31, G32, K12, K31, M51

Suggested Citation

Bai, John (Jianqiu) and Eldemire-Poindexter, Ashleigh and Serfling, Matthew, The Effect of Labor Mobility on Corporate Investment and Performance over the Business Cycle (April 14, 2023). 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 )

360 Huntington Ave.
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)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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