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What Drives Firms’ Hiring Decisions? An Asset Pricing Perspective

Author

Listed:
  • Frederico Belo
  • Andres Donangelo
  • Xiaoji Lin
  • Ding Luo
  • Stijn Van

Abstract

We document that the aggregate hiring rate of publicly traded firms in the U.S. economy negatively predicts stock market returns and long-term cash flows, and positively predicts short-term cash flows. In addition, through a variance decomposition, we show that the time-series variation in the aggregate hiring rate is mainly driven by changes in discount rates and short-term expected cash flows, with no contribution from variation in long-term expected cash flows. We estimate a neoclassical dynamic model with labor market frictions and show that labor adjustment costs and time-varying risk are essential for the model to replicate the empirical patterns.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Frederico Belo & Andres Donangelo & Xiaoji Lin & Ding Luo & Stijn Van, 2023. "What Drives Firms’ Hiring Decisions? An Asset Pricing Perspective," The Review of Financial Studies, Society for Financial Studies, vol. 36(9), pages 3825-3860.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:9:p:3825-3860.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhad012
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    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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