Abstract
This paper investigates the effect of shareholder litigation rights on labor investment efficiency. Using a difference-in-differences approach based on the staggered adoption of universal demand (UD) laws, we find that firms incorporated in states that have adopted UD laws experience lower labor investment efficiency. Furthermore, the negative association between UD law adoption and efficient labor investment is more concentrated in firms exposed to higher shareholder litigation risk ex ante and high-skilled labor firms. Our evidence is consistent with the notion of the passage of UD laws strengthens agency problems, and thus reduces labor investment efficiency.
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