Events

Professor Andrew Ellul
Professor of Finance
Kelley School of Business
Indiana University

Entrepreneurs with better diversified portfolios provide more insurance to employees against labor income risk: in a sample of over 524,000 Canadian firms and 858,000 owners, firms owned by more diversified entrepreneurs offer more stable jobs and earnings to employees when hit by shocks. A one standard deviation increase in owner’s diversification reduces the shock’s pass-through rate to labor layoffs by 13% and to workers’ earnings by 41%. The data are consistent with such insurance being partly provided to retain valuable human capital and partly to avoid costly terminations.