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Role of skilled labour in financial decisions

A paper co-authored by Senior Lecturer in Finance Viet Dang and Professor of Accounting and Finance Konstantinos Stathopoulos has been accepted for publication in The Review of Financial Studies, a leading finance journal.

The study looks at the role that skilled labour plays in shaping a business’ financing decisions, and specifically at how firms’ cash management policies are affected by their dependence on their workers’ skill levels.

One of the conclusions of the paper, which was also written with former Alliance MBS PhD student Mohamed Ghaly and current Lecturer in Finance at Lancaster University, is that firms relying more on skilled workers tend to adopt more conservative cash policies.

Dr Dang explained: “High-skill firms have an incentive to maintain significant liquid resources in order to safeguard against future cash flow uncertainty and retain their most valuable assets, namely skilled labour. Our results help highlight another reason why public firms, which have become in recent years more human capital-intensive, tend to sit on significant cash stockpiles.”

He says the paper’s findings provide practical implications, namely that companies that wish to recruit and retain talent should design their financial policies in an appropriate way. “Building precautionary cash reserves is important to high-skill firms, especially those that are financially constrained and face strong competition from rivals,” he added.

A related article by the three authors has been previously published in the Journal of Corporate Finance. That paper examined the relationship between employee welfare practices and corporate cash holdings and found that firms strongly committed to employee well-being, measured by ratings on employee relations, are likely to hold more cash.

Adds Dr Dang: “Taken together these papers highlight our continuing body of research which focuses on the interaction of corporate financing decisions and labour economics.”