Real Effects of Temporary Employees: Evidence From Cost Behaviour

ABSTRACT This study examines the relationship between the use of temporary employees and corporate cost behaviour, along with its managerial implications. Utilising a uniquely comprehensive data set on temporary employees from Korea, we find that firms with a higher proportion of temporary employees exhibit greater cost flexibility in response to sales fluctuations. This increased flexibility enhances inventory management efficiency and contributes to improved long‐term financial performance. Sub‐sample analyses reveal that such flexibility is more pronounced in non‐high‐technology sectors, firms with lower levels of corporate social responsibility engagement, firms facing higher financial constraints, those with labour unions, and firms pursuing relatively aggressive strategies.