Can mixed ownership reform improve labor investment efficiency: evidence from China

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ABSTRACT Using a Difference-in-Differences (DiD) approach, we investigate the impact of MOR on the labor investment efficiency (LIE) in China. We find that MOR can improve labor investment efficiency by reducing SOEs’ deviations of labor investment from the level justified by economic fundamentals. Specifically, the significant mitigating effects of MOR mainly apply to inefficiencies concerning both over-investments in labor through over-hiring and under-investments through over-firing. These findings demonstrate robustness across an array of empirical tests, including the application of alternative Difference-in-Differences (DiD) or Triple Difference (DDD) methodologies, the inclusion of additional control variables along with province-fixed effects, and the exclusion of firms with changes in ownership type. The conclusions hold steady after considering the impact of anticorruption measures. The effect of MOR is more prominent for firms with less privatization, greater market frictions, higher external pressure, limited political connections, and lower financial constraints. In addition, we show that MOR in China reduces the labor misallocation within manufacturing sector, improves the education level of employees, but has no significant effects on the employment size or the labor share at the firm level.