Abstract
In this paper, we find that severer controlling shareholder expropriation is associated with higher deviations of labor investment from the level justified by economic fundamentals, i.e., lower labor investment efficiency. Under the pyramid-like ownership structure, this relation is more pronounced for non-state owned enterprises (non-SOEs) under higher expropriation risk (with more intermediate layers) and state-owned enterprises (SOEs) subject to stronger government intervention (with fewer intermediate layers). Moreover, the main effect is largely driven by either over-firing in non-SOEs or under-firing in both non-SOEs and SOEs. Overall, this paper reveals a specific channel through which controlling-minority shareholder conflicts reduce real economic efficiency.
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