The negative hiring rate premium on stock returns in the Korean stock market

Abstract

This study examines the effect of labor market friction on asset pricing in the Korean stock market. We find a general negative relation between hiring rates and future stock returns, but this relation almost disappears for firms experiencing financial distress or high labor turnover. In addition, we demonstrate that the negative hiring premium is larger across firms with high-skilled workers than those with low-skilled workers and is more prominent for male than for female hiring rates. Finally, we show that firms belonging to large business groups have larger labor adjustment costs due to their unique recruitment process.