TY - JOUR
T1 - Do employee-friendly firms invest more efficiently? Evidence from labor investment efficiency
AU - Cao, Zhangfan
AU - Rees, William
N1 - Funding Information:
We would like to thank Bart Lambrecht (the Editor), three anonymous referees, Dien Giau Bui, Steven Cahan, Charlie Cai, Steven Xianglong Chen, Hans Christensen, Jo Danbolt, Steven Dellaportas, Angelica Gonzalez, Susan Hancock, Gilles Hilary, Chen Hua, Alex Kostakis, Lin Liao, Brian Main, Bill Megginson, Beatriz García Osma, Tatiana Rodionova, Cathy Shakespeare, Chung-Hua Shen, Ben Sila, Douglas Stockbridge Jr. Ping Sun, David Veenman, Jiayan Yan, Cheng Zeng, Zhifang Zhang and conference participants at the 41st EAA Annual Congress, the XIV International Accounting Research Symposium and the 3rd International Workshop on Interdisciplinary Research in Accounting. This project was started when the first author was a PhD student at the University of Edinburgh. Part of this study was conducted when the first author was visiting Ross School of Business, University of Michigan, which we thank for the generous hospitality.
Publisher Copyright:
© 2020 Elsevier B.V.
PY - 2020/12
Y1 - 2020/12
N2 - We investigate the impact of employee treatment on labor investment efficiency. We provide evidence that employee-friendly treatment is significantly associated with lower deviations of labor investment from the level justified by economic fundamentals, i.e., higher labor investment efficiency. The effect of employee treatment on labor investment efficiency is stronger for firms that are human-capital-intensive, with more skilled labor and knowledge capital, and those that face higher product market competition. Using the 2008–2009 financial crisis as an external shock and applying the difference-in-difference method, we also show that employee-friendly firms have higher labor investment efficiency in the post-financial crisis period, but experience more inefficient labor investments during the crisis. Our results are robust to placebo tests, selection bias, propensity score matching, alternative explanations, alternative proxies for both employee treatment and labor investment efficiency as well as the adjustment for using residuals as dependent variables, additional control variables, and various approaches in addressing endogeneity issues.
AB - We investigate the impact of employee treatment on labor investment efficiency. We provide evidence that employee-friendly treatment is significantly associated with lower deviations of labor investment from the level justified by economic fundamentals, i.e., higher labor investment efficiency. The effect of employee treatment on labor investment efficiency is stronger for firms that are human-capital-intensive, with more skilled labor and knowledge capital, and those that face higher product market competition. Using the 2008–2009 financial crisis as an external shock and applying the difference-in-difference method, we also show that employee-friendly firms have higher labor investment efficiency in the post-financial crisis period, but experience more inefficient labor investments during the crisis. Our results are robust to placebo tests, selection bias, propensity score matching, alternative explanations, alternative proxies for both employee treatment and labor investment efficiency as well as the adjustment for using residuals as dependent variables, additional control variables, and various approaches in addressing endogeneity issues.
KW - Corporate social responsibility
KW - Employee treatment
KW - Financial crisis
KW - Human capital
KW - Labor investment efficiency
UR - http://www.scopus.com/inward/record.url?scp=85092037130&partnerID=8YFLogxK
U2 - 10.1016/j.jcorpfin.2020.101744
DO - 10.1016/j.jcorpfin.2020.101744
M3 - Article
AN - SCOPUS:85092037130
SN - 0929-1199
VL - 65
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
M1 - 101744
ER -
