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Do industry tournament incentives affect labor investment efficiency?

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  • Deng, Mingmao
  • Mei, Chun

Abstract

This research examines the extent to which industry tournament incentives influence firms’ labor investment efficiency. We develop two opposing hypotheses based on the potential advantageous and adverse impacts of these incentives. Consistent with the favorable perspective, our empirical analyses reveal a statistically significant and economically meaningful positive relationship, suggesting that greater industry tournament incentives enhance labor investment efficiency. Analyses of subsamples indicate that such incentives mainly alleviate labor overinvestment, especially by curbing over-hiring and over-firing, with little influence on underinvestment cases. Additional cross-sectional tests reveal that this positive influence is more pronounced in firms characterized by greater agency frictions and weaker governance monitoring. Overall, these results contribute to the body of work on executive incentives by underscoring the disciplinary function of industry tournament incentives in labor allocation decisions.

Suggested Citation

  • Deng, Mingmao & Mei, Chun, 2026. "Do industry tournament incentives affect labor investment efficiency?," Economic Analysis and Policy, Elsevier, vol. 89(C), pages 709-720.
    • Handle: RePEc:eee:ecanpo:v:89:y:2026:i:c:p:709-720
    DOI: 10.1016/j.eap.2025.12.037
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