Labor unemployment risk and firm risk |
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Authors: | Erik Devos Shofiqur Rahman |
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Affiliation: | 1. Economics and Finance Department, College of Business Administration, University of Texas at El Paso, El Paso, Texas, USA;2. Finance Department, College of Business, New Mexico State University, Las Cruces, New Mexico, USA |
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Abstract: | This paper examines the effect of labor unemployment risk on firm risk. Using unemployment insurance benefits as a proxy for unemployment risk, we find an economically significant positive relation between unemployment risk and firm risk. This positive relation is more pronounced for firms that are more labor-intensive, have a higher layoff propensity and are more financially constrained. While existing literature that employs corporate policy measures such as debt and cash holdings suggests an opposite relationship, our paper presents evidence that the effects stemming from earnings management, earnings quality and reporting quality appear to dominate. |
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Keywords: | compensating wage differentials firm risk unemployment insurance benefit unemployment risk |
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