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Does a change in the information environment affect labor adjustment costs?

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  • Marshall, Ben R.
  • Nguyen, Justin Hung
  • Nguyen, Nhut H.
  • Visaltanachoti, Nuttawat

Abstract

We consider how a firm's information environment impacts an index of three proxies for the costs it incurs when adjusting its workforce. We show firms with less information asymmetry have lower labor adjustment costs (LACs). Moreover, this relation is stronger for firms with lower financing constraints and stronger financial performance and growth, which suggests these attributes are particularly appealing to employees. Our difference-in-difference tests based on two exogenous asymmetric information shocks around broker mergers and closures, and decimalization indicate the link is likely causal. Finally, we show that LACs are an important channel through which information asymmetry impacts firm value.

Suggested Citation

  • Marshall, Ben R. & Nguyen, Justin Hung & Nguyen, Nhut H. & Visaltanachoti, Nuttawat, 2021. "Does a change in the information environment affect labor adjustment costs?," International Review of Financial Analysis, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:finana:v:74:y:2021:i:c:s1057521921000089
    DOI: 10.1016/j.irfa.2021.101665
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