Eurasian Economic Review

, Volume 7, Issue 2, pp 297–309 | Cite as

Stickiness of employee expenses and implications for stock returns

Original Paper


This paper proposes a new measure for operating inflexibility based on firms’ downside stickiness of expenditures on employees. Firms are affected not only by labor unions, but also by human capital risks that influence firms’ expected stock returns. The contribution of the current study is to show, in general, that expenditures on employees affect firms’ operating inflexibility and thus account for higher stock returns. This may well be the first paper to conduct time-series predictability tests of market returns for market operating leverage, and to find a positive interaction in and out of sample.


Asset pricing Investment Capacity Wages 

JEL Classification

E22 E24 G12 


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Copyright information

© Eurasia Business and Economics Society 2017

Authors and Affiliations

  1. 1.Department of Economics and Business AdministrationAriel UniversityArielIsrael

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