LABOR INTENSITY AND OPERATING LEVERAGE IN MANUFACTURING FIRMS

Yıl 2015, Cilt: 3 Sayı: 1, 1 - 13, 06.01.2016

Figen Güneş Doğan

https://doi.org/10.18825/irem.81315

Öz

I show that industry adjusted labor intensity is positively related to expected returns for firms in the
manufacturing industry. Labor is one the most important factor of productions for a firm. When a negative
shock hits the economy, revenues fall. However, labor costs do not fall as much as revenues. On average at
the firm level, revenues are more procyclical than labor costs and labor costs are less procyclical than capital
expenditures. Therefore, firms with relatively high labor intensity are more vulnerable to the business cycle
than those with less labor intensity. I also show that firms with higher labor intensity have higher cash flow
sensitivity to the aggregate shocks. This result supports the operating leverage mechanism behind the labor
intensity and return relationship. 

Anahtar Kelimeler

Labor intensity, Operating leverage, Cross section of expected returns

Kaynakça

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