Labor Skill and Dividend Policy
48 Pages Posted: 10 May 2021 Last revised: 28 Jun 2021
Date Written: May 7, 2021
We examine how firms’ labor skill heterogeneity affects dividend policy. Since it is more costly to hire, retain, and layoff skilled labor than unskilled labor, we hypothesize that firms relying more on skilled labor are more cautious in setting their dividend policy, which competes with funding for labor force. We find that firms with more skilled labor are less likely to distribute or increase dividends, and when they do so, the magnitudes are smaller. We further document that dividend increases by such firms are more strongly correlated with future earnings increases and are accompanied by stronger stock market reactions.
Keywords: Labor skill, Labor adjustment costs, Dividend policy
JEL Classification: G35, J3
Suggested Citation: Suggested Citation