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Stock liquidity and corporate labor investment11We are grateful to the editor (Heitor Almeida) and an anynmous reviewer for detailed and significant guidance and suggestions. We thank Huu Duong, Alvin Lee, Xiaoyang Li, Haoyi Luo, Buhui Qiu, Jiri Svec, Thomas To, Xiangkang Yin, Eliza Wu, and the conference participants at Australasian Finance and Banking Conference 2020 (AFBC) and the 34th PhD Conference in Economics and Business for helpful comments. All errors remain ours

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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 investment11We are grateful to the editor (Heitor Almeida) and an anynmous reviewer for detailed and significant guidance and suggestions. We thank Huu Duong, Alvin," 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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    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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