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Local labor market and corporate investment

Author

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  • Ge, Yao
  • Huang, Wei
  • Qiao, Zheng
  • Zheng, Hao

Abstract

To capture local labor market pooling in agglomeration economics, we employ segment information and occupation statistics to construct firm-pair labor force similarities. Our findings indicate a positive relation between local labor market thickness and corporate investment, influenced by both employer-driven labor demand and employee-driven labor supply. The findings are more pronounced in firms with more skilled labor, less routine-task labor, and higher product and technology competitions. Firms in thicker local labor markets also display higher investment efficiency, higher operating efficiency, and higher valuation. To mitigate the endogeneity concern, we employ an instrumental variable approach to show robustness. Overall, we uncover a specific linkage between the local labor market and corporate investment.

Suggested Citation

  • Ge, Yao & Huang, Wei & Qiao, Zheng & Zheng, Hao, 2024. "Local labor market and corporate investment," Journal of Empirical Finance, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:empfin:v:79:y:2024:i:c:s0927539824000884
    DOI: 10.1016/j.jempfin.2024.101554
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    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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