Labour Investment: A Managers’ Decision-Making Perspective

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My dissertation consists of three studies that investigate factors that affect management’s labour investment decisions and how management of labour influences firm performance. In my first study, I examine how firms adjust their labour in response to business downturns and how different labour adjustment practices influence firms’ financial performance. I classify firms into two groups: those with more stable labour adjustment strategies (most sticky in labour) and those with more flexible labour adjustment strategies (least sticky in labour). I find that companies with more flexible labour adjustment strategies outperform relative to companies with more stable labour adjustment strategies in terms of return on assets. Using DuPont analysis, I find that underperformance of stable companies is due to lower efficiency (asset turnover) and the superior performance of flexible firms is due to higher efficiency. However, stable firms achieve higher profit margin than flexible firms, consistent with the resource-based view of human capital. In my second study, I investigate whether higher ability managers achieve better performance outcomes through labour investment. I document that deviations from expected net hiring are, on average, smaller for higher ability managers. In this regard, I find that higher ability managers avoid both over-investment and under-investment in labour. I also find that managerial ability mitigates the negative effects of deviations from expected hiring on future firm performance. This latter result holds whether deviations from expected hiring are positive or negative. In my third study, I investigate how companies adjust their employment in recessions with a focus on credit constraints. Controlling for firm productivity, I find an inverted U-shaped relationship between leverage and labour growth rate. This suggests that debt accommodates labour growth up to a certain point, but adding additional debt after that point imposes financial constraints on firms’ ability to effectively manage labour growth – these firms may be forced to grow labour less or reduce labour more than the optimal amount. In addition, recession enlarges the negative impact of financial constraints on labour growth rate. Findings of my thesis studies contribute to management decision-making regarding labour adjustment in response to business cycles.
Yu, D. (2020). Labour Investment: A Managers’ Decision-Making Perspective (Doctoral thesis, University of Calgary, Calgary, Canada). Retrieved from