Working Paper: NBER ID: w29746
Authors: John W. Barry; Murillo Campello; John Graham; Yueran Ma
Abstract: We use the COVID shock to study the direct and interactive effects of several forms of corporate flexibility on short- and long-term real business plans. We find that i) workplace flexibility, namely the ability for employees to work remotely, plays a central role in determining firms’ employment plans during the health crisis; ii) investment flexibility allows firms to increase or decrease capital spending based on their business prospects in the crisis, with effects shaped by workplace flexibility; and iii) financial flexibility contributes to stronger employment and investment, in particular when fixed costs are high. While the role of workplace flexibility is new to the COVID crisis, CFOs expect lasting effects for years to come: high workplace flexibility firms foresee continuation of remote work, stronger employment recovery, and shifting away from traditional capital investment, whereas low workplace flexibility firms rely more on automation to replace labor.
Keywords: corporate flexibility; COVID-19; employment plans; investment decisions; financial flexibility
JEL Codes: G01; G17; G31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial Flexibility (G32) | Employment Growth (O49) |
| Financial Flexibility (G32) | Investment Plans (G11) |
| Workplace Flexibility (J29) | Employment Growth (O49) |
| Workplace Flexibility (J29) | Capital Spending Plans (G31) |
| Investment Flexibility (G31) | Capital Spending (G31) |
| Workplace Flexibility (J29) | Investment Flexibility (G31) |
| Workplace Flexibility (J29) | Long-term Expectations (Recovery) (D84) |
| Low Workplace Flexibility (J29) | Automation Implementation (L23) |
| Automation Implementation (L23) | Low-Skill Worker Displacement (F66) |