The dark side of asset redeployability through the lens of corporate employment decisions

Abstract

This study examines how U.S.-listed firms' asset redeployability affects their labor investment efficiency and documents a negative relationship between asset redeployability and labor investment efficiency. Asset redeployability increases overinvestment in labor in the forms of over-hiring and under-firing and provides managers more opportunities to conduct earnings management, which reduces financial reporting quality, readability, and comparability, thereby harming labor investment efficiency. Furthermore, our additional results indicate that the negative impact of asset redeployability on labor investment efficiency is mitigated for firms that have a higher degree of unionization, employ more skilled labor, or implement better corporate governance practices.