Abstract
This paper examines whether level of analyst following affects firms’ labor investment efficiency. Using a sample of US public companies from 2001 to 2015, we find that firms with greater analyst coverage make more efficient labor investment decisions. Increased efficiency of labor investment is ascribed to lower levels of firms’ over-firing problems. Moreover, we find that analysts have a more positive influence on efficiency of labor investment when firms have higher cash holdings. This paper emphasizes the role of analysts in firms’ labor investment decisions.
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