Labor Investment Efficiency Research Articles

The Impact of Accounting Information Quality on Corporate Labor Investment Efficiency: Evidence from China

The Impact of Accounting Information Quality on Corporate Labor Investment Efficiency: Evidence from China

The effects of chief executive officer gender on firm labor investment efficiency

This study examines the relationship between the gender of the chief executive officer (CEO) and a firm's labor investment efficiency. It evaluates whether firms led by a female CEO engage in more efficient labor-related investment decisions than those led by a male CEO. Using U.S. public companies as samples, we found that female CEOs make better employment-based investments by inhibiting a firm's overinvestment in labor. Furthermore, the results revealed that firms with a female CEO are more efficient at hiring employees. Additional analysis demonstrated that a female CEO's ability to reduce inefficiency in labor investments is greater for firms with more free cash flow. Thus, the results suggest that female CEOs are better at preventing suboptimal labor investment decisions, especially when hiring employees. This association is stronger when they have greater managerial power within a company.

Digital finance and Chinese corporate labor investment efficiency: The perspective of financing constraints and human capital structure.

As the aging population problem intensifies, many emerging economies are caught in labor shortage and rising labor costs, thus improving the corporate labor investment efficiency (LIE) is crucial for these countries. In this context, we take China as an example to explore the influence of the current booming digital finance (DF) on corporate LIE. This paper, which enriches the existing literature, is one of the few studies that explores the link between macroeconomic policies and firms’ LIE. Our research adopts the baseline methodology of ordinary least squares (OLS) regression, and the data comprise 23,503 observations for Chinese A-share listed businesses from 2011 to 2020. In addition, we use fixed effects regression, instrumental variables method and substitution of independent variables to deal with endogeneity and test the robustness. The outcomes suggest that DF may significantly increase corporate LIE. Further results from the path mechanism study suggest that DF could alleviate financing constraints and optimize human capital structure, both of which have a favorable effect on the LIE. Last but not least, the heterogeneity results imply that DF can more effectively encourage LIE of firms in economically underdeveloped regions and of private nature. The study recommends that emerging economies should pay attention to strengthening regulation to avoid financial risks while vigorously promoting DF. In addition, enhancing the level of human capital and optimizing human capital allocation are also essential.

Labor investment efficiency and cash flow volatility

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.

Foreign Ownership and Labor Investment Efficiency*

This paper examines the effect of foreign ownership on firms’ labor investment efficiency, which is an essential factor for the firms’ long-term operating performance. Further, this paper examines whether foreign ownership alleviates over or under investment in labor, focusing on the Korean stock market. Using Korean listed 22,924 firm/year observations from 1997 to 2019, we estimate abnormal net hiring by using the abnormal portion of net hiring for each firm/year observations. The empirical results suggest that foreign ownership is negatively associated with the absolute value of abnormal net hiring, which indicates that foreign ownership enhances firms’ labor investment efficiency. Additional analyses suggest that foreign ownership alleviates over and underinvestment in labor in the Korean stock market. Further analyses suggest that foreign ownership’s monitoring effect toward labor investment efficiency enhances sustainability operating performance. Robustness tests, including firm-fixed effects and two-stage least squares estimation, supports our main results. There is an ongoing debate on whether foreign ownership’ active monitoring role in developing countries. Foreign ownership conducts an active monitoring role in developing countries regarding labor investment. Thus, our results suggest that foreign ownership may be an one of determinant of enhancing firms’ labor investment efficiency in Korean stock marekt.

Controlling shareholder expropriation and labor investment efficiency

In this paper, we find that severer controlling shareholder expropriation is associated with higher deviations of labor investment from the level justified by economic fundamentals, i.e., lower labor investment efficiency. Under the pyramid-like ownership structure, this relation is more pronounced for non-state owned enterprises (non-SOEs) under higher expropriation risk (with more intermediate layers) and state-owned enterprises (SOEs) subject to stronger government intervention (with fewer intermediate layers). Moreover, the main effect is largely driven by either over-firing in non-SOEs or under-firing in both non-SOEs and SOEs. Overall, this paper reveals a specific channel through which controlling-minority shareholder conflicts reduce real economic efficiency.

Does corporate sexual orientation equality affect labor investment efficiency?

We investigate the effect of corporate sexual orientation equality (CSOE) on labor investment efficiency (LIE). We find strong evidence that this effect is negative. The relationship intensifies for firms with weaker monitoring and those requiring more highly skilled labor, and is incremental to the effects of corporate social responsibility (CSR) performance. This study adds to an emerging literature on corporate sexual orientation equality and to the literature on labor economics, as it establishes corporate sexual orientation equality as a determinant of labor investment efficiency.

Labor investment efficiency and credit ratings

We examine the relationship between labor investment efficiency and credit ratings. Using a sample of U.S. firm spanning the period 1987 to 2016, we document that inefficient labor investment decreases firm credit ratings. Our results remain robust to possible endogeneity concerns. We also document that financial distress, earnings volatility, and firm life cycle moderate the relationship between inefficient labor investments and credit ratings.

Does Corporate Governance Affect Labor Investment Efficiency?

This study examined the effect of corporate governance on labor investment efficiency, using 5178 firm-year samples from companies listed on the Korean stock market over the period from 2011 to 2019. In addition, the relationship between corporate governance and labor investment efficiency according to whether the company belongs to a chaebol group was examined. Corporate governance was measured using KCGS’s corporate governance ratings. This study tried to verify whether labor investment inefficiency due to information asymmetry is improved by excellent corporate governance. The results show that in the case of the entire sample, the relationship between corporate governance and labor investment efficiency was significant in the positive (+) direction. That is, it is an empirical result indicating that a company with a sound governance structure is making effective labor investment. The samples were divided into overinvestment samples and underinvestment samples, and the relationship between corporate governance and labor investment efficiency was analyzed separately in the two samples. According to the results, the positive relationship between corporate governance and labor investment efficiency was significant only in the case of underinvestment samples. In addition, the positive relationship between corporate governance and labor investment efficiency was more statistically significant in the case of companies belonging to a chaebol group. This study provided implications for authorities, shareholders, and investors, etc., in that it suggests the role of corporate governance as a mechanism to alleviate the agency problem between managers and investors.

Aggressive Tax Planning and Labor Investments

We examine the association between aggressive tax planning and labor investment efficiency among U.S. firms. Labor is an important input to production that is material to many firms, and prior research suggests that inefficient labor investments can negatively affect future profitability and growth. We provide evidence that firms engaging in aggressive tax planning are associated with deviations from expected labor investments, which is indicative of labor investment inefficiency. We find that our results are concentrated in labor underinvestment, consistent with risks and uncertainties from aggressive tax planning making firms more cautious when investing. Our findings are strongest among firms with greater tax risk, higher labor costs, and weaker corporate governance. Our study contributes to the literature examining tax planning consequences by providing evidence that a tradeoff exists between aggressive tax planning and investments in labor. Therefore, our results suggest that managers should carefully consider the cash flow benefits of tax planning in conjunction with the potential effects of lower labor investments to ensure that the overall long-term effect of the tax strategy is value-increasing.

Does directors' and officers' liability insurance induce empire building? Evidence from corporate labor investment

This study examines whether directors' and officers' (D&O) insurance affects corporate employment decision-making. Using a 2006–2018 sample of Chinese public firms, we find that firms purchasing D&O insurance exhibit lower labor investment efficiency, reflected mainly in over-hiring. The findings are strengthened by a set of additional robustness tests to mitigate endogeneity concerns and selection bias. The negative relation between D&O insurance and labor investment efficiency is more pronounced in firms with weak corporate governance, a low proportion of female executives, high labor intensity and low legal risks. Further analysis suggests that inefficient labor investment leads to worse future firm performance. This study provides the first empirical evidence that D&O insurance increases managerial empire building tendencies via over-investment in labor, which, in turn, is detrimental to shareholder value.

Do external labor market incentives improve labor investment efficiency?

This paper examines the impact of CEO external labor market incentives, proxied by CEO industry tournament incentives (CITI), on a firm’s labor investment efficiency (LIE). We develop two competing hypotheses based on the bright side of CITI and the dark side of CITI. Consistent with the former, we find a positive association between CITI and LIE. In cross-sectional tests, we show that the relationship between CITI and LIE is more pronounced for firms with weaker monitoring. Furthermore, this relationship is amplified for firms with weaker financial standing. Our results survive an array of tests for robustness and endogeneity concerns.

Does environmental regulation affect labor investment Efficiency?Evidence from a quasi-natural experiment in China

Applying the sulfur dioxide (SO2) emission trading system (ETS) as an exogenous shock to environmental regulation, we conduct a quasi-natural experiment to investigate the impact of environmental regulation on labor investment efficiency. Our results indicate that SO2 ETS impedes a firm's labor investment efficiency. This effect is driven by the firm's over-firing or under-hiring behaviors, not by the lower total investment efficiency. Moreover, we show that the impact of SO2 ETS is more pronounced in firms with higher agency costs and high labor adjusting costs. Besides, the low labor investment efficiency is not substantial for state-owned enterprises.

Corporate governance and labor investment efficiency: International evidence from board reforms

AbstractResearch Question/IssueThis study investigates whether and how board reforms affect labor investment efficiency using a difference‐in‐differences analysis of board reforms in 41 countries worldwide as an exogenous shock.Research Findings/InsightsBoard reforms are positively associated with labor investment efficiency because they benefit firms in reducing over‐hiring, under‐firing, under‐hiring, and over‐firing. Further, we show that the positive effect is more pronounced among firms with lower board independence before the reforms, firms with high institutional foreign ownership, firms with higher corporate social responsibility (CSR), and labor‐intensive firms. While countries with rule‐based reforms experience a greater reduction in abnormal net hiring post‐reform, the effects of reforms are similar across civil and common law countries. Further analyses reveal that in countries with higher employment protection legislation, the beneficial relationship between board reforms and labor investment efficiency is weaker.Theoretical/Academic ImplicationsOur study suggests that one of the mechanisms linking board reforms and labor investment efficiency is a reduction in frictions, such as moral hazard and adverse selection, which hamper efficient labor investment. To the best of our knowledge, this is the first international study that explores globally the relationship between board reforms and firm labor policies, in particular, labor investment efficiency.Practitioner/Policy ImplicationsGiven the importance of identifying and confirming the role of corporate governance in human capital investment efficiency, our empirical investigation provides useful insights and policy implications for managers in building efficient labor policies.

Does Corporate Sexual Orientation Equality Affect Labor Investment Efficiency?

Does Corporate Sexual Orientation Equality Affect Labor Investment Efficiency?

Non-CEO executives’ intra-organizational competition incentives and corporate labor investment efficiency

Non-CEO executives’ intra-organizational competition incentives and corporate labor investment efficiency

Stock liquidity and corporate labor investment

Labor is among the most crucial factors of production that maintain a firm's competitiveness. Given its economic importance, drivers of firms' labor investment policy have gained increasing attention in the financial economics literature. This study investigates the relation between stock liquidity and labor investment efficiency. We establish a causal relation between the two phenomena using an exogenous shock to liquidity: the 2001 decimalization of stock trading. We find that labor investment efficiency improves following an increase in stock liquidity, and the effect is prevalent in firms experiencing overinvestment in labor. Our findings further support the argument that stock liquidity improves the efficiency of labor investment by enhancing governance through shareholder exit threat.

How Property Rights Affect Firm’s Labor Investment Efficiency? Evidence from a Property Law Enactment in China

ABSTRACT The previous studies mainly focus on how property rights affect firm’s physical investment. Although the scale of labor investment is larger than physical investment, little is known about how property rights affect firm’s labor investment decision. In this paper, we exploit a property law enactment as an exogenous shock and use a difference-in-differences methodology with all the Chinese A-share firms from 2004 to 2010. We find that strong property rights enhance firm’s labor investment efficiency and the efficiency improvement derives from less underinvestment in labor. The effect of property rights on labor investment efficiency is more pronounced when firms face more government intervention and firms rely more on external finance before the enactment of property law. The results suggest that legal rights protection channel and financing convenience channel are potential mechanisms through which property rights influence labor investment efficiency. Overall, our results indicate that property rights play an important role in encouraging firms to invest in intangible assets and reshaping firm’s investment patterns.

불성실공시법인의 고용효율성

[연구목적] 본 연구는 외부 정보이용자에게 제공되는 공시정보의 불투명성과 고용효율성과의 관련성을 검증한다. 불성실공시 척도로는 불성실공시 제재여부, 횟수 및 벌점을 활용하고 고용의 효율성은 적정 고용 수준을 기준으로 과대고용, 과소고용, 과대해고, 과소해고로 세분한다(Jung et al., 2014；강민정과 오광욱, 2019). 연구가설에 대한 세부 검증을 위해 이하의 실증 모형 및 결과에서는 불성실공시와 관련된 3가지 변수, 고용의 비효율성을 4가지 유형으로 구분·분석한다. [연구방법] 2003년부터 2017년까지 15년간 거래소 및 코스닥 시장에 상장된 13,509개 표본을 토대로 불성실공시 지정과 기업의 고용 효율성을 검증하였다. 또한, 불성실공시 지정기업과 미지정기업과의 기업특성 차이가 본 연구결과에 미치는 영향을 통제하고자 성향점수매칭(Propensity－Score matching)한 표본을 대상으로 추가 분석하였다. [연구결과] 불성실공시법인 지정여부, 누적벌점 및 불성실공시지정 횟수와 기업의 고용효율성은 유의한 양(＋)의 회귀계수 값을 보인다. 이와 같은 결과는 불성실공시법인의 고용효율성이 악화된다는 것을 의미한다. 추가적으로 고용효율성의 유형별(과대고용, 과대해고, 과소고용, 과소해고) 불성실공시 정보와의 관계를 검증한 결과, 과소해고의 경우를 제외한 모든 분석에서 통계적으로 유의한 양(＋)의 관련성이 있다는 결과를 발견하였다. [정책적 시사점] 기존의 실물투자 중심의 효율성보다 재무제표 항목의 중요 항목이자 유연성이 상대적으로 큰 고용투자의 효율성과의 관련성으로 확장한 결과를 제시한다. 다음으로 본 연구는 공시의 투명성과 고용투자의 효율성과 관련된 보다 구체적인 행태를 분석·제시한다. 이를 통해 정보이용자들 입장에서 정보의 공유가 어려운 기업의 고용행태의 특성에 대한 이해를 돕고 이를 의사결정에 참고할 수 있는 근거를 제시한다.

Shareholder litigation rights and labor investment efficiency

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.