Workforce Shocks and Financial Markets: Asset Pricing Perspectives
Workforce adjustments, such as mass layoffs, are significant corporate events that can influence stock returns and volatility, yet their broader asset-pricing implications remain underexplored. We examine the impact of such workforce shocks on stock performance from an asset-pricing perspective. Grounded in production-based asset-pricing theory, incorporating labor adjustment costs and search-and-matching frictions, our study posits that disruptions in the labor force significantly affect firm risk and value. This focus addresses a clear gap. Previous research has not comprehensively evaluated workforce shocks as systematic risk factors in a cross-sectional asset-pricing model. Using an extensive dataset spanning 1990–2023 and covering thousands of layoff events, we construct a novel “workforce shock” factor and conduct the first large-scale empirical tests of its pricing relevance. Our analysis reveals that workforce shocks lead to lower stock returns and heightened volatility, effects especially pronounced in labor-intensive firms. Moreover, exposure to workforce shock risk carries a significant premium, indicating that these disruptions act as a systematic risk factor priced in the cross-section of equity returns. Overall, our study provides the first comprehensive evidence linking labor force disturbances to equity risk premia, underscoring the importance of incorporating labor market considerations into asset-pricing models.
Authors
- Samreen Akhtar (ORCID: https://orcid.org/0000-0002-8969-0188)
- Refia Wiquar
- Alam Ahmad (ORCID: https://orcid.org/0000-0003-2499-337X)
- Mohd Shahid Ali
- Jyoti Agarwal
Institutions
- Saudi Electronic University (SA)
- Shree Guru Gobind Singh Tricentenary University (IN)
- University of Jeddah (SA)
- Dammam Central Hospital (SA)
- Sharda University (IN)
Publication Details
- Journal
- International Journal of Financial Studies
- Published
- 2026-01-06
- DOI
- https://doi.org/10.3390/ijfs14010012
- Primary Topic
- Organizational Downsizing and Restructuring
- Type
- article
- Field-Weighted Citation Impact
- 0.00