@conference{2dcd918b3bb249d79831dc19240f0b14, title = "What Drives Firms' Hiring Decisions? An Asset Pricing Perspective", abstract = "In a neoclassical dynamic model of the firm with labor market frictions, optimal hiring is a forward-looking decision that depends on both discount rates and expected cash flows. Empirically, we show that: a) the aggregate hiring rate of publicly traded firms in the U.S. economy negatively predicts stock market excess returns and long-term cash flows both in-sample and out-of-sample, and positively predicts short-term cash flows; and b) through a variance decomposition, the time series variation in the aggregate hiring rate is mainly driven by changes in discount rates and short-term expected cash flows, each contributing roughly to 50% of the variation, with no contribution from variation in long-term expected cash flows. Through a structural estimation of the model, we show that labor adjustment costs and, to a lesser extent, time-variation in the price of aggregate productivity risk, are essential for the model to replicate the empirical patterns.", author = "Frederico BELO and Andres DONANGELO and Xiaoji LIN and Ding LUO", year = "2020", month = may, day = "26", language = "English", note = "SFS Cavalcade North America 2020 ; Conference date: 25-05-2020 Through 28-05-2020", url = "http://sfs.org/financecavalcades/sfs-cavalcade-north-america-2020/", }