Cash Holdings and Labor Heterogeneity: The Role of Skilled Labor

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Firms differ in their dependence on skilled labor, and face labor adjustment costs that increase with their workers’ skill level. We show that firms with a higher share of skilled workers, and thus less flexibility to adjust their labor demand in response to cash flow shocks, hold more precautionary cash. The effect of labor skills on cash holdings is more pronounced for financially constrained firms and varies with exogenous differences in firing and hiring costs. We address endogeneity concerns by using subsamples of firms with reasonably similar characteristics, propensity score matching, and a quasi-experimental shock to labor markets.
Original languageEnglish
Pages (from-to)3636-3668
JournalReview of Financial Studies
Issue number10
Early online date19 May 2017
Publication statusPublished - Oct 2017


  • Cash Holdings, Skilled Labor, Labor Adjustment Costs, Labor Heterogeneity


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