Labor Matching and Equity Prices
47 Pages Posted: 23 Jun 2021
Date Written: August 30, 2020
This article examines the relation between labor matching and long-term equity returns. A long short portfolio of high minus low labor matching firms generates four-factor abnormal returns of 6.67% annually. The returns are 5.77% over industry- and 5.28% over characteristics-matched benchmarks. Our findings are robust after controlling for portfolio weights, factor models, number of portfolios, and exclusion of outliers. The higher matching firms also show greater positive surprises and positive returns following earnings announcements. A quasi-natural experiment in which state-wide labor matching was impeded following the adoption of inevitable disclosure doctrine shows firms headquartered in those states lost significant shareholder value.
Keywords: labor matching, long-term returns, human capital, intangibles, firm value
JEL Classification: G14, G32, J21, J24, J61
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