EconPapers    
Economics at your fingertips  
 

Does external labour market activeness affect agency problem?

Yuyun Claudie Huang, Jamie Yixing Tong and Joey W. Yang

International Review of Financial Analysis, 2025, vol. 103, issue C

Abstract: This study examines the relationship between external labour market and the agency problem. Exploiting the staggered recognition of the Inevitable Disclosure Doctrine (IDD) by US state courts to capture a drop in external labour market activeness, we examine whether and how the activeness of external labour market affects managers' empire building behaviour. We find that in IDD-recognising states, managers are less engaged in empire-building activity, thus reducing agency costs and improving firm performance. The effect is concentrated in managers with heightened career concern where their firms experience higher degrees of financial constraints or operate within an industry of more intense in-state competition. We also rule out alternative explanations in which lower levels of empire building are associated with managers pursuing a quiet life or underinvestment. Our results hold for a battery of robustness tests and offer insights into the disciplining role of external labour markets in mitigating the agency problem.

Keywords: Labour market activeness; Inevitable disclosure doctrine; Agency problem; Empire building (search for similar items in EconPapers)
JEL-codes: G38 J61 K22 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521925002522
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:103:y:2025:i:c:s1057521925002522

DOI: 10.1016/j.irfa.2025.104165

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-05-20
Handle: RePEc:eee:finana:v:103:y:2025:i:c:s1057521925002522