Political connections and labor investment efficiency

Gholamreza Karami, Sasan Mehrani, Salman Beik Boshrouyeh, Mostafa Ezadpour, Masoud Mohebbi and Milad Samavat

International Review of Economics & Finance, 2024, vol. 89, issue PB, 568-580

Abstract: Despite that extant literature has shown that political connections offer various advantages, it is expected that they will lead to sub-optimal investments in firms due to increased agency conflicts and information asymmetry. This paper explores the impact of political connections on labor investment efficiency. We emphasize labor investment because human capital is crucial in creating a competitive advantage for companies and is also considered by politicians. Our results indicate that political connections deteriorate labor investment efficiency in the form of labor over-investment. Thus, companies that have political connections are often inclined to hire more employees in order to leverage the advantages and privileges that come with their connections.

Keywords: Political connections; Investment; Labor investment efficiency (search for similar items in EconPapers)
JEL-codes: D25 E22 E24 G18 G38 J21 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:89:y:2024:i:pb:p:568-580

DOI: 10.1016/j.iref.2023.10.010

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