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The effect of superstar firms on college major choice

Choi, Darwin, Lou, Dong ORCID: 0000-0002-5623-4338 and Mukherjee, Abhiroop (2018) The effect of superstar firms on college major choice. Financial Markets Group Discussion Papers (772). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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We study the effect of superstar firms on an important human capital decision - college students' choice of major. Past salient, extreme events in an industry, as proxied by cross-sectional skewness in stock returns (or in favorable news coverage), are associated with a disproportionately larger number of college students choosing to major in related fields, even after controlling for the average industry return. This tendency to follow the superstars, however, results in a temporary over-supply of human capital. Specifically, we provide evidence that the additional labor supply due to salient, extreme events lowers the average wage earned by entry-level employees when students enter the job market. At the same time, employment size and employee turnover stay roughly constant in related industries, consistent with the view that labor demand is relatively inelastic in the short run. In the longer term, firms cope with the supply increase by gradually expanding the number of positions that require prior experience.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2018 The Authors
Divisions: Finance
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
G - Financial Economics > G2 - Financial Institutions and Services > G20 - General
Date Deposited: 31 May 2023 23:03
Last Modified: 16 Sep 2023 00:01

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