What Drives Firms’ Hiring Decisions? An Asset Pricing Perspective

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

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Author(s)

  • Frederico Belo
  • Andres Donangelo
  • Xiaoji Lin
  • Ding Luo

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)3825–3860
Number of pages36
Journal / PublicationReview of Financial Studies
Volume36
Issue number8
Online published9 Feb 2023
Publication statusPublished - Sept 2023

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. © 2023 The Author(s).

Research Area(s)

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Research Unit(s) information for this publication is provided by the author(s) concerned.

Citation Format(s)

What Drives Firms’ Hiring Decisions? An Asset Pricing Perspective. / Belo, Frederico; Donangelo, Andres; Lin, Xiaoji et al.
In: Review of Financial Studies, Vol. 36, No. 8, 09.2023, p. 3825–3860.

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review