2021
Working Paper
HBS Working Paper Series

Financial Flexibility and Corporate Employment

By: Rebecca Lester, Ethan Rouen and Braden Williams

Format:Print
| Language:English
| Pages:70

Abstract

We study the role of financial flexibility on COVID-19 employment actions. Using daily data from March through May 2020 for 354 of the largest U.S. employers, we find that firms facing a negative demand shock were 28.8 percentage points more likely to reduce their workforce and 17.3 percentage points less likely to provide pay increases to frontline workers, compared to other sample firms. Pre-pandemic financial flexibility attenuates these effects, reducing the likelihood of workforce reductions by almost half. The role of financial flexibility is greatest in firms with better governance, a more asymmetric cost structure, and better treatment of workers.

Keywords

Financial Flexibility; COVID-19; Pandemic; Employment; Health Pandemics; System Shocks; Finance

Citation

Lester, Rebecca, Ethan Rouen, and Braden Williams. "Financial Flexibility and Corporate Employment." Harvard Business School Series in Accounting and Control, No. 21-119, April 2021.