IDEAS home Printed from https://ideas.repec.org/a/taf/euract/v12y2003i4p699-732.html
   My bibliography  Save this article

Labour leverage, equity risk and corporate policy choice

Author

Listed:
  • Joshua Rosett

Abstract

This paper investigates the role of labour utilization in assessing equity investment risk and corporate financial policy choices. Several existing models of the firm predict that labour utilization is costly to adjust in the short run. I argue that this leads to a relatively fixed obligation to pay cash to labour, in effect creating an off-balance-sheet intangible liability similar to a lease. The liability creates 'labour leverage' risk, analogous to financial leverage risk. Labour leverage is hypothesized to be positively correlated with equity investment risk as measured by characteristics of stock returns. Managers recognize this risk and adjust financial policies including debt financing and dividend policy accordingly. The main empirical results are that labour leverage is positively correlated with equity investment risk, and it plays the predicted role in regressions explaining financial structure and dividend policy. Proxies for labour leverage are simple measures based on existing disclosure. The results are consistent with the conjectures that market participants use labour disclosures to assess risk, and that managers take actions to mitigate this risk. The results are consistent across most sectors of the economy, and consistent over time.

Suggested Citation

  • Joshua Rosett, 2003. "Labour leverage, equity risk and corporate policy choice," European Accounting Review, Taylor & Francis Journals, vol. 12(4), pages 699-732.
    • Handle: RePEc:taf:euract:v:12:y:2003:i:4:p:699-732
    DOI: 10.1080/0963818031000087880
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/0963818031000087880
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/0963818031000087880?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Shigeki Sakakibara & Bo Hansson & Tadanori Yosano & Hideo Kozumi, 2010. "Analysts’ Perceptions of Intellectual Capital Information," Australian Accounting Review, CPA Australia, vol. 20(3), pages 274-285, September.
    2. Anne Wyatt & Hermann Frick, 2010. "Accounting for Investments in Human Capital: A Review," Australian Accounting Review, CPA Australia, vol. 20(3), pages 199-220, September.
    3. Schiemann, Frank & Guenther, Thomas, 2013. "Earnings Predictability, Value Relevance, and Employee Expenses," The International Journal of Accounting, Elsevier, vol. 48(2), pages 149-172.
    4. 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.
    5. Regier, Matthias & Rouen, Ethan, 2023. "The stock market valuation of human capital creation," Journal of Corporate Finance, Elsevier, vol. 79(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:euract:v:12:y:2003:i:4:p:699-732. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REAR20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.