Abstract
We investigate the association between cash flow volatility and labor investment efficiency using a sample of US-listed firms from 2000 to 2021. We document a positive association between cash flow volatility and labor investment efficiency. We also document that dividend-paying firms are associated with higher labor investment efficiency; however, we estimated a negative interaction effect between cash flow risk and dividend-payout on labor investment efficiency. Our evidence suggests that in a competitive product market, volatile cash flow leads to increased labor investment efficiency. These findings enrich our understanding of how firms judiciously use their resources in times of uncertainty.
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