Stock liquidity and corporate labor investment

Mong Shan Ee, Iftekhar Hasan and He Huang

Journal of Corporate Finance, 2022, vol. 72, issue C

Abstract: 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.

Keywords: Stock liquidity; Labor investment efficiency (search for similar items in EconPapers)
JEL-codes: G11 J20 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:72:y:2022:i:c:s0929119921002649

DOI: 10.1016/j.jcorpfin.2021.102142

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