Financial Flexibility and Corporate Employment

68 Pages Posted: 20 Apr 2021 Last revised: 14 Jun 2021

See all articles by Rebecca Lester

Rebecca Lester

Stanford Graduate School of Business

Ethan Rouen

Harvard Business School

Braden Williams

University of Texas at Austin - Department of Accounting

Date Written: June 10, 2021

Abstract

We study the role of financial flexibility on COVID-19 employment actions. Using daily data from March through May 2020 for 354 of the largest U.S. employers, we first quantify the effect of the pandemic on employees: Firms facing a negative demand shock were 28.8 percentage points more likely to reduce their workforce and 15.6 percentage points less likely to provide pay increases to frontline workers, compared to other sample firms. We then show that pre-pandemic financial flexibility attenuates these pandemic effects, reducing the likelihood of workforce reductions by almost half. The role of financial flexibility is greatest in firms with better governance, a more asymmetric cost structure, and better pre-pandemic treatment of workers.

Keywords: Employment, financial flexibility, COVID-19, pandemic

JEL Classification: G31, J01, J20, J30, M40, M50

Suggested Citation

Lester, Rebecca and Rouen, Ethan and Williams, Braden, Financial Flexibility and Corporate Employment (June 10, 2021). Stanford University Graduate School of Business Research Paper, Available at SSRN: https://ssrn.com/abstract=3829751 or http://dx.doi.org/10.2139/ssrn.3829751

Rebecca Lester (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

HOME PAGE: http://www.gsb.stanford.edu/faculty-research/faculty/rebecca-lester

Ethan Rouen

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States
617-495-6275 (Phone)

HOME PAGE: http://www.ethanrouen.com

Braden Williams

University of Texas at Austin - Department of Accounting ( email )

Austin, TX 78712
United States

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