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Political connections and labor investment efficiency

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

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.

Suggested Citation

  • Karami, Gholamreza & Mehrani, Sasan & Beik Boshrouyeh, Salman & Ezadpour, Mostafa & Mohebbi, Masoud & Samavat, Milad, 2024. "Political connections and labor investment efficiency," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 568-580.
    • Handle: RePEc:eee:reveco:v:89:y:2024:i:pb:p:568-580
    DOI: 10.1016/j.iref.2023.10.010
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    More about this item

    Keywords

    Political connections; Investment; Labor investment efficiency;
    All these keywords.

    JEL classification:

    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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