Labour and the Market Value of the Firm

Eran Yashiv () and Monika Merz ()

No 4184, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: What role does labour play in firms? market value? We explore this question using a production-based asset-pricing model with frictions in the adjustment of both capital and labor. We posit that hiring of labour is akin to investment in capital and that the two interact, with the interaction being a crucial determinant of market value behaviour. We use aggregate US corporate sector data to estimate firms? optimal hiring and investment decisions and the consequences for firms? value. We then decompose this value, thereby quantifying the link between firms? market value and gross hiring flows, employment, gross investment and physical capital. We find that a conventional specification ? quadratic adjustment costs for capital and no hiring costs ? performs poorly. Rather hiring and investment flows, unlike employment and capital stocks, are volatile and both are essential to account for market volatility. A key result is that firms? value embodies the value of hiring and investment over and above the capital stock.

Keywords: Production-based asset pricing; Labour market frictions; Gross flows; Q-model; Gmm (search for similar items in EconPapers)
JEL-codes: E22 E23 E24 G12 (search for similar items in EconPapers)
Date: 2004-01
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Related works:
Journal Article: Labor and the Market Value of the Firm (2007)
Working Paper: Labor and the Market Value of the Firm (2005)
Working Paper: Labor and the market value of the firm (2005)
Working Paper: Labor and the Market Value of the Firm (2003)
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