Financial Flexibility and Corporate Employment

Posted: 20 Apr 2021 Last revised: 14 Sep 2022

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: May 30, 2022

Abstract

We study the role of financial flexibility on firms’ workforce reduction decisions during a time of extreme economic uncertainty. Using daily data from the start of the COVID-19 pandemic —March through May 2020 — for 354 of the largest U.S. employers, we first descriptively show that negatively shocked firms were 39.2 percentage points more likely to reduce their workforce than positively shocked firms. Our central finding is that pre-pandemic financial flexibility significantly reduces the likelihood of workforce reductions. We further demonstrate that the attenuating role of financial flexibility is greatest among firms with better governance and those with more asymmetric cost structures. Firms with stronger pre-pandemic commitments to employees are more likely to retain workers, regardless of their financial flexibility. These results provide insights on both financial and non-financial characteristics influencing workforce decisions, thereby informing managers about employment decisions in times of economic uncertainty.

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 (May 30, 2022). 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

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
9,569
PlumX Metrics