Listed founding family firms and labor cost stickiness#

Abstract

Does founding family control affect labor cost stickiness? Theoretically, labor cost stickiness is a double‐sided sword: While it can be interpreted as long‐term commitment to employees, it increases operating leverage, reduces operating performance, and thus jeopardizes long‐term firm survival. Empirically, we find that—consistent with socioemotional wealth theory suggesting that founding family firms are more employee oriented—founding family firms exhibit greater labor costs stickiness. The pattern is more pronounced in industries with high labor turnover and high labor intensity. Furthermore, we find that abnormal high labor cost stickiness in family firms reduces profitability and non‐labor investments.