Abstract
This paper studies how analysts’ group affiliation affects firms’ labor investment efficiency. Using a 2001–2017 sample of Korean public companies, we find that labor investment efficiency increases when there are more unaffiliated analysts following business group (chaebol) firms. Our regression results also suggest that an increase in labor investment efficiency is attributed to a reduction in firms’ over-firing problem. However, affiliated analysts are not found to influence firms’ labor investment efficiency. We further document that the positive influence of unaffiliated analysts on labor investment efficiency holds when firms have high cash holdings. Our results are robust to different model specifications, including two-stage least square regression and firm-size matching.
Highlights
It is well known that analysts actively communicate with the senior managers of companies and serve an important role in corporate policy decisions
Three databases are used in this study: the analyst following and accounting data are from DataguidePro, the institutional ownership data is from TS2000, and the firms’ group affiliation data is from the Korea Fair Trade Commission (KFTC)
The coefficient of NGAGF is negative and significant (−0.0019; p-value < 0.05), while the coefficients of GAGF, group analysts following nongroup or unaffiliated firms (GANGF), and NGANGF are insignificant. This result indicates that labor investment efficiency increases in group firms as there are more nongroup analysts following, but it is not affected by group-affiliated analysts
Summary
It is well known that analysts actively communicate with the senior managers of companies and serve an important role in corporate policy decisions. Analysts mentioned that conversations with senior managers are a very useful source when they make stock recommendations or earnings forecasts. Graham, Harvey, and Rajgopal showed that many CFOs view analysts as the most important investors in terms of setting the stock price for their companies [2]. Senior managers reported that analysts affect their decisions on corporate policies, as meeting analyst benchmarks is an important consideration for them. Analysts and corporate managers are talking to each other in the hope that they can obtain or deliver valuable information about the firm, which can affect corporate policy and stimulate corporate sustainability
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
