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Stock liquidity and corporate labor investment

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  • Ee, Mong Shan
  • Hasan, Iftekhar
  • Huang, He

Abstract

Labor is among the most crucial factors of production that maintain a firm's competitiveness. Given its economic importance, drivers of firms' labor investment policy have gained increasing attention in the financial economics literature. This study investigates the relation between stock liquidity and labor investment efficiency. We establish a causal relation between the two phenomena using an exogenous shock to liquidity: the 2001 decimalization of stock trading. We find that labor investment efficiency improves following an increase in stock liquidity, and the effect is prevalent in firms experiencing overinvestment in labor. Our findings further support the argument that stock liquidity improves the efficiency of labor investment by enhancing governance through shareholder exit threat.

Suggested Citation

  • Ee, Mong Shan & Hasan, Iftekhar & Huang, He, 2022. "Stock liquidity and corporate labor investment," Journal of Corporate Finance, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:corfin:v:72:y:2022:i:c:s0929119921002649
    DOI: 10.1016/j.jcorpfin.2021.102142
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    More about this item

    Keywords

    Stock liquidity; Labor investment efficiency;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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