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Does stock price informativeness affect labor investment efficiency?

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  • Ben-Nasr, Hamdi
  • Alshwer, Abdullah A.

Abstract

In this paper, we examine whether managers use information included in stock prices when making labor investment decisions. Specifically, we examine whether stock price informativeness affects labor investment efficiency. We find that a higher probability of informed trading (PIN) is associated with lower deviations of labor investment from the level justified by economic fundamentals, i.e., higher labor investment efficiency. This finding is robust to using alternative proxies for stock price informativeness and labor investment efficiency, when we control for earnings quality and mispricing, and when we address endogeneity issues. Furthermore, we report evidence suggesting that the positive impact of stock price on labor investment efficiency is more (less) pronounced in firms from highly unionized industries and firms facing higher financial constraints (firms from industries that rely more on skilled labor).

Suggested Citation

  • Ben-Nasr, Hamdi & Alshwer, Abdullah A., 2016. "Does stock price informativeness affect labor investment efficiency?," Journal of Corporate Finance, Elsevier, vol. 38(C), pages 249-271.
    • Handle: RePEc:eee:corfin:v:38:y:2016:i:c:p:249-271
    DOI: 10.1016/j.jcorpfin.2016.01.012
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    More about this item

    Keywords

    Stock price informativeness; Private information; Managerial learning; Investment efficiency; Labor investment; Corporate governance;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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