Organization capital and labor investment efficiency

Hasibul Chowdhury, Trinh Hue Le and Kelvin Jui Keng Tan

Journal of Financial Stability, 2025, vol. 77, issue C

Abstract: We examine whether a firm’s organization capital (OC) affects its labor investment efficiency. We find that a higher level of OC is related to lower deviations from the optimal level of labor investment according to economic conditions (higher labor investment efficiency). We find that this result is empirically robust to a stacked difference-in-differences approach using exogenous CEO turnover as a quasi-natural experiment and planned CEO retirements and forced CEO turnovers as placebo tests. We identify that the ability to retain talented employees and reduction of agency costs are the two channels by which OC improves a firm’s labor investment efficiency. Furthermore, we report that the positive effect of OC on labor investment efficiency is more pronounced in firms in highly competitive markets, firms with better access to external financing and firms with highly skilled labor.

Keywords: Organization capital; Labor investment efficiency; Net hiring practice (search for similar items in EconPapers)
JEL-codes: G31 G32 J24 M51 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:77:y:2025:i:c:s1572308925000130

DOI: 10.1016/j.jfs.2025.101384

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