Human resource heterogeneity, hold-up and firm cash holdings

PurposeThis paper aims to study the impact of human resource heterogeneity on firms’ cash-holding policies.Design/methodology/approachThe authors construct a proxy for human resource heterogeneity using the dissimilarity in employees’ skill structure between the firm and its peers in the same industry.FindingsThe authors report evidence that firms with heterogeneous human resources hold more cash than other firms. This effect is more pronounced in labor-intensive firms and firms more susceptible to hold-up by employees, i.e. firms located in regions with more labor disputes and firms surrounded by more external employment opportunities. In addition, the authors demonstrate that high cash holdings triggered by human resource heterogeneity reduce the scale and efficiency of firms’ capital investment.Originality/valueOur study highlights the role of human resource heterogeneity in determining firms’ cash policies. This paper adds to the understanding of labor adjustment costs within the firm and provides insights into firms’ cash-holding decisions.