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Conditional conservatism and labor investment efficiency

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  • Ha, Joohyung
  • Feng, Mingming

Abstract

Prior literature documents that asymmetric timely recognition of losses versus gains (also known as conditional conservatism) can induce management to make more efficient investment decisions by mitigating information asymmetry between management and investors and providing early signals about the profitability of projects that are undertaken. In this paper, we investigate the impact of conservatism on an important investment decision that has been overlooked, namely, investment in labor. We find that conservatism is negatively associated with labor investment inefficiency; more specifically, conservatism reduces inefficient investment practices on the labor market, including over-hiring, under-firing, under-hiring, and over-firing. Our results hold after controlling for managerial ability, corporate governance, and other investments.

Suggested Citation

  • Ha, Joohyung & Feng, Mingming, 2018. "Conditional conservatism and labor investment efficiency," Journal of Contemporary Accounting and Economics, Elsevier, vol. 14(2), pages 143-163.
    • Handle: RePEc:eee:jocaae:v:14:y:2018:i:2:p:143-163
    DOI: 10.1016/j.jcae.2018.05.002
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    More about this item

    Keywords

    Conditional conservatism; Labor investment efficiency;

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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