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Local tournament incentives and labor investment efficiency

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  • Mei, Chun
  • Deng, Mingmao

Abstract

This paper investigates the effect of CEO local tournament incentives (CLTI) on firms’ labor investment efficiency (LIE). Using data from Chinese listed companies form 2005 to 2023, we find a positive association between CLTI and LIE. Our results remain robust when employing alternative proxies for CLTI and LIE, as well as in endogeneity tests. Additionally, we observe that CLTI mitigates both labor overinvestment (underfiring) and labor underinvestment (underhiring). Cross-sectional analysis reveals that this relationship is more pronounced in non-state-owned firms and those located in eastern China. Overall, our findings suggest that regional competition among CEOs for higher compensation plays a pivotal role in shaping labor investment decisions.

Suggested Citation

  • Mei, Chun & Deng, Mingmao, 2025. "Local tournament incentives and labor investment efficiency," Finance Research Letters, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:finlet:v:74:y:2025:i:c:s1544612324017239
    DOI: 10.1016/j.frl.2024.106694
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    References listed on IDEAS

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