Labor Mobility, Climate Disasters, and Corporate Cash Reserve

Abstract

This paper investigates the impact of climate disasters on the relation between labor mobility and corporate cash holdings. We show that firms increase their cash holdings in response to relaxing labor mobility constraints. The effect is more pronounced for firms affected by more frequent climate disasters. Further, we show that firms with higher skilled labor promptly increase their cash reserve by responding to intense climate disasters, whereas firms with higher routine-task labor remain unchanged. Overall, the findings provide suggestive evidence that firms with skilled workers who are exposed to severe climate disasters have a conservative financial policy to shield from the increased cost of labor adjustment caused by climate disasters.

Keywords: labor mobility, climate disasters, cash holdings, precautionary savings, skilled labor

JEL Classification: G15, G32, G38, Q54