Previous studies have identified a negative relation between firms' hiring rates and future stock returns in the cross-section.We document that this relation is significantly steeper in industries that rely relatively more on high-skill workers than low-skill workers. A longshort portfolio sorted on firm-level hiring rate earns an average annual return of 8.6% in high-skill industries, and only 0.9% in low-skill industries. Moreover, this pattern is not explained by the standard CAPM. These findings are consistent with a neoclassical model with labor force heterogeneity and labor market frictions if it is more costly to replace high-skill than low-skill workers.
|Original language||English (US)|
|Number of pages||41|
|Journal||Review of Financial Studies|
|State||Published - Oct 1 2017|
Bibliographical notePublisher Copyright:
© 2017 The Author. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.