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Equity Risk and the Labor Stock: The Case of Union Contracts

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  • Joshua G. Rosett

Abstract

This paper investigates the role of the stock of unionized labor in determining equity investment risk. I estimate a labor stock measure based on expected compensation costs, and use the ratio of labor stock to total assets as a risk proxy. At the median, the labor stock is comparable in magnitude to total assets. Regression estimates show the associations between labor‐based risk proxies and equity market risk measures are both economically and statistically significant. In addition, the labor‐based measures provide risk information over and above information contained in standard risk proxies such as financial and operating leverage.

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  • Joshua G. Rosett, 2001. "Equity Risk and the Labor Stock: The Case of Union Contracts," Journal of Accounting Research, Wiley Blackwell, vol. 39(2), pages 337-364, September.
    • Handle: RePEc:bla:joares:v:39:y:2001:i:2:p:337-364
    DOI: 10.1111/1475-679X.00016
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    Cited by:

    1. Bo Hansson, 2004. "Human Capital and Stock Returns: Is the Value Premium an Approximation for Return on Human Capital?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(3‐4), pages 333-358, April.
    2. Luis García‐Feijóo & Randy D. Jorgensen, 2010. "Can Operating Leverage Be the Cause of the Value Premium?," Financial Management, Financial Management Association International, vol. 39(3), pages 1127-1154, September.
    3. Favilukis, Jack & Lin, Xiaoji, 2016. "Does wage rigidity make firms riskier? Evidence from long-horizon return predictability," Journal of Monetary Economics, Elsevier, vol. 78(C), pages 80-95.
    4. Frederico Belo & Xiaoji Lin & Santiago Bazdresch, 2014. "Labor Hiring, Investment, and Stock Return Predictability in the Cross Section," Journal of Political Economy, University of Chicago Press, vol. 122(1), pages 129-177.
    5. Jin, Li & Merton, Robert C. & Bodie, Zvi, 2006. "Do a firm's equity returns reflect the risk of its pension plan?," Journal of Financial Economics, Elsevier, vol. 81(1), pages 1-26, July.
    6. Marty Stuebs & Li Sun, 2010. "Business Reputation and Labor Efficiency, Productivity, and Cost," Journal of Business Ethics, Springer, vol. 96(2), pages 265-283, October.
    7. Flora F. Niu & Gordon D. Richardson, 2006. "Are Securitizations in Substance Sales or Secured Borrowings? Capital†Market Evidence," Contemporary Accounting Research, John Wiley & Sons, vol. 23(4), pages 1105-1133, December.
    8. Huynh, Nhan, 2023. "Unemployment beta and the cross-section of stock returns: Evidence from Australia," International Review of Financial Analysis, Elsevier, vol. 86(C).
    9. Schiemann, Frank & Guenther, Thomas, 2013. "Earnings Predictability, Value Relevance, and Employee Expenses," The International Journal of Accounting, Elsevier, vol. 48(2), pages 149-172.
    10. Mihir A. Desai & Li Jin, 2007. "Institutional Tax Clienteles and Payout Policy," NBER Working Papers 13283, National Bureau of Economic Research, Inc.
    11. Bo Hansson, 2004. "Human Capital and Stock Returns: Is the Value Premium an Approximation for Return on Human Capital?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(3-4), pages 333-358.
    12. Arnab Bhattacharjee & Chris Higson & Sean Holly, 2015. "Operating Leverage over the Business Cycle," Cambridge Working Papers in Economics 1535, Faculty of Economics, University of Cambridge.
    13. Vinay Khandelwal & Prashant Sharma & Varun Chotia, 2023. "ESG Disclosure and Firm Performance: An Asset-Pricing Approach," Risks, MDPI, vol. 11(6), pages 1-22, June.
    14. Moinak Maiti & Darko Vuković, 2020. "Role of human assets in measuring firm performance and its implication for firm valuation," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 9(1), pages 1-27, December.
    15. Desai, Mihir A. & Jin, Li, 2011. "Institutional tax clienteles and payout policy," Journal of Financial Economics, Elsevier, vol. 100(1), pages 68-84, April.
    16. Elizabeth Gutiérrez & Ben Lourie & Alexander Nekrasov & Terry Shevlin, 2020. "Are Online Job Postings Informative to Investors?," Management Science, INFORMS, vol. 66(7), pages 3133-3141, July.
    17. Til Beckmann & William Forbes, 2004. "An Examination of Takeovers, Job Loss and the Wage Decline within UK Industry," European Financial Management, European Financial Management Association, vol. 10(1), pages 141-165, March.
    18. Ghaly, Mohamed & Kostakis, Alexandros & Stathopoulos, Konstantinos, 2021. "The (non-) effect of labor unionization on firm risk: Evidence from the options market," Journal of Corporate Finance, Elsevier, vol. 66(C).
    19. Choi, Jongmoo Jay & Ju, Ming & Trigeorgis, Lenos & Zhang, Xiaotian Tina, 2021. "Outsourcing flexibility under financial constraints," Journal of Corporate Finance, Elsevier, vol. 67(C).

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