Publications [#325834] of Matthias Kehrig

Papers Submitted

1. Kehrig, M; Donangelo, A; Gourio, F; Palacios, M, The Cross-Section of Labor Leverage and Equity Returns (September, 2016), pp. 497-518, Elsevier BV
   (last updated on 2024/04/18)

   Abstract:
   Using a standard production model, we demonstrate theoretically that, even if labor is fully flexible, it generates a form of operating leverage if (a) wages are smoother than productivity and (b) the capital-labor elasticity of substitution is strictly less than one. Our model supports using labor share -- the ratio of labor expenses to value added -- as a proxy for labor leverage. We show evidence for conditions (a) and (b), and we demonstrate the economic significance of labor leverage: High labor-share firms have operating profits that are more sensitive to shocks, and they have higher expected asset returns.