Workforce Shocks and Financial Markets: Asset Pricing Perspectives

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Authors: Samreen Akhtar, Jyoti Agarwal, Alam Ahmad, Refia Wiquar, Mohd Shahid Ali
Cited by: 2
References: 62

Abstract

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.

Fields of Study & Subjects

Organizational Downsizing and Restructuring Corporate Finance and Governance Financial Distress and Bankruptcy Prediction

Publication details

Journal / source
International Journal of Financial Studies
Publisher
MDPI AG
Volume
14
Issue
1
Pages
12–12
Publication date
6 January 2026
Language
EN