The stability of dividends and wages: effects of competitor inflexibility

  • We analyze global data about electricity generation and document that the risk exposure of a firm’s owners and its workers depends on competitors’ ability or willingness to change their output in response to productivity shocks. Competitor inflexibility appears to be a risk factor: the sales of firms with more inflexible competitors respond more strongly to aggregate sales shocks. As a consequence, competitor inflexibility also affects the stability of firms’ total wage- and dividend-payments. Firms with relatively flexible competitors appear to smoothen both wages and dividends, but an increase in competitor inflexibility is associated with less dividend-smoothing and more wage-smoothing. Our evidence supports the idea that labor productivity risk associated with competitor inflexibility should be borne by firms’ shareholders, rather than by their workers.

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Author:Daniel A. Rettl, Alex Stomper, Josef ZechnerORCiDGND
Parent Title (English):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 549
Series (Serial Number):CFS working paper series (549)
Publisher:Center for Financial Studies
Place of publication:Frankfurt, M.
Document Type:Working Paper
Year of Completion:2016
Year of first Publication:2016
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2016/11/01
Issue:March 26, 2016
Page Number:52
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht