The Effect of Board Chairs’ Hometown Identity on Labor Cost Stickiness

Abstract

In this study, we examine the impact of board chairs’ hometown identity on labor cost stickiness in state-owned enterprises (SOEs). Using data from China, our findings demonstrate that local board chairs can effectively mitigate labor cost stickiness by leveraging their communication advantages. Mechanism analyses reveal that local board chairs primarily achieve this through salary reductions rather than layoffs. We validate two plausible channels, cultural alignment and social trust, through a series of heterogeneity tests. Our results indicate that the influence of board chairs’ hometown identity is more pronounced in SOEs located in provinces with smaller dialect diversity, less population mobility, and lower social trust levels, as well as those led by board chairs without overseas experience, serving longer terms, and far from retirement. Overall, this study contributes to existing literature by providing empirical evidence on how board chairs’ hometown identity facilitates the alleviation of labor cost stickiness in SOEs.