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Do external labor market incentives improve labor investment efficiency?

Hasibul Chowdhury, Ashrafee Hossain, Kelvin Tan and Jiayi Zheng

Journal of Behavioral and Experimental Finance, 2022, vol. 34, issue C

Abstract: 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.

Keywords: Labor investment efficiency; Monitoring; Industry tournament incentives; CEO insentive (search for similar items in EconPapers)
JEL-codes: G32 G34 M12 M51 M52 M54 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jbef.2022.100648

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Journal of Behavioral and Experimental Finance is currently edited by Michael Dowling and Jürgen Huber

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