Andrew Ellul's webpage

Entrepreneurs`Diversification and Labor Income Risk

Abstract:
Entrepreneurs with more diversified portfolios of private firms provide more insurance against labor income risk: in a sample of over 524,000 Canadian firms and 858,000 owners, firms owned by such entrepreneurs offer more  stable jobs and earnings to employees. In firms whose  owners’ portfolios are one standard deviation more  diversified, the passthrough rates of foreign sales shocks to  layoffs and labor earnings are 13% and 41% lower,  respectively. These entrepreneurs reduce their own  compensation and increase firm leverage to fund labor  income insurance. Enhanced insurance is associated with  better retention of valuable human capital and fewer costly  terminations, potentially improving firm performance.