IDEAS home Printed from https://ideas.repec.org/a/eee/jocaae/v18y2022i3s1815566922000273.html
   My bibliography  Save this article

Institutional investors’ site visits and corporate employment decision-making

Author

Listed:
  • Lai, Shaojie
  • Li, Xiaorong
  • Liu, Shiang
  • Wang, Qing Sophie

Abstract

This study examines the effect of institutional investors’ site visits on corporate employment decision-making. Using a unique dataset of corporate site visits (CSVs) to the listed firms in China, we find that CSVs are associated with less labor investment inefficiency. The effect is more pronounced in firms with lower information quality, worse corporate governance, and severe financial constraints. Our results are robust to endogeneity concerns. Further analysis suggests that labor investment inefficiency leads to lower future performance. Overall, our results are consistent with the view that CSVs improve information quality, corporate governance, and access to finance, which in turn, mitigates inefficient labor investment.

Suggested Citation

  • Lai, Shaojie & Li, Xiaorong & Liu, Shiang & Wang, Qing Sophie, 2022. "Institutional investors’ site visits and corporate employment decision-making," Journal of Contemporary Accounting and Economics, Elsevier, vol. 18(3).
    • Handle: RePEc:eee:jocaae:v:18:y:2022:i:3:s1815566922000273
    DOI: 10.1016/j.jcae.2022.100332
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1815566922000273
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jcae.2022.100332?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Biddle, Gary C. & Hilary, Gilles & Verdi, Rodrigo S., 2009. "How does financial reporting quality relate to investment efficiency?," Journal of Accounting and Economics, Elsevier, vol. 48(2-3), pages 112-131, December.
    2. Bing Han & Dongmin Kong & Shasha Liu, 2018. "Do Analysts Gain an Informational Advantage by Visiting Listed Companies?," Contemporary Accounting Research, John Wiley & Sons, vol. 35(4), pages 1843-1867, December.
    3. Jin, Li & Myers, Stewart C., 2006. "R2 around the world: New theory and new tests," Journal of Financial Economics, Elsevier, vol. 79(2), pages 257-292, February.
    4. Andrés Donangelo, 2014. "Labor Mobility: Implications for Asset Pricing," Journal of Finance, American Finance Association, vol. 69(3), pages 1321-1346, June.
    5. Ben-Nasr, Hamdi & Alshwer, Abdullah A., 2016. "Does stock price informativeness affect labor investment efficiency?," Journal of Corporate Finance, Elsevier, vol. 38(C), pages 249-271.
    6. Samuel Bentolila & Marcel Jansen & Gabriel Jiménez, 2018. "When Credit Dries Up: Job Losses in the Great Recession," Journal of the European Economic Association, European Economic Association, vol. 16(3), pages 650-695.
    7. Qiang Cheng & Fei Du & Xin Wang & Yutao Wang, 2016. "Seeing is believing: analysts’ corporate site visits," Review of Accounting Studies, Springer, vol. 21(4), pages 1245-1286, December.
    8. Chen, Hanwen & Yang, Daoguang & Zhang, Joseph H. & Zhou, Haiyan, 2020. "Internal controls, risk management, and cash holdings," Journal of Corporate Finance, Elsevier, vol. 64(C).
    9. Thorsten Beck & Ross Levine & Alexey Levkov, 2010. "Big Bad Banks? The Winners and Losers from Bank Deregulation in the United States," Journal of Finance, American Finance Association, vol. 65(5), pages 1637-1667, October.
    10. Eugene Soltes, 2014. "Private Interaction Between Firm Management and Sell‐Side Analysts," Journal of Accounting Research, Wiley Blackwell, vol. 52(1), pages 245-272, March.
    11. Mark C. Anderson & Rajiv D. Banker & Surya N. Janakiraman, 2003. "Are Selling, General, and Administrative Costs “Sticky”?," Journal of Accounting Research, Wiley Blackwell, vol. 41(1), pages 47-63, March.
    12. Sophie Wang, Qing & Lai, Shaojie & Pi, Shuwen & Anderson, Hamish, 2022. "Does directors' and officers' liability insurance induce empire building? Evidence from corporate labor investment," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    13. Hau, Harald & Lai, Sandy, 2013. "Real effects of stock underpricing," Journal of Financial Economics, Elsevier, vol. 108(2), pages 392-408.
    14. Yang, Jun & Lu, Jing & Xiang, Cheng, 2020. "Company visits and stock price crash risk: Evidence from China," Emerging Markets Review, Elsevier, vol. 44(C).
    15. Fateh Saci & Sajjad Jasimuddin, 2021. "Does the research done by the institutional investors affect the cost of equity capital?," Post-Print halshs-03617379, HAL.
    16. Khedmati, Mehdi & Aminu Sualihu, Mohammed & Yawson, Alfred, 2021. "Does religiosity matter for corporate labor investment decisions?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 17(2).
    17. Ghaly, Mohamed & Dang, Viet Anh & Stathopoulos, Konstantinos, 2020. "Institutional investors' horizons and corporate employment decisions," Journal of Corporate Finance, Elsevier, vol. 64(C).
    18. Gerard Hoberg & Gordon Phillips, 2016. "Text-Based Network Industries and Endogenous Product Differentiation," Journal of Political Economy, University of Chicago Press, vol. 124(5), pages 1423-1465.
    19. Campello, Murillo & Graham, John R. & Harvey, Campbell R., 2010. "The real effects of financial constraints: Evidence from a financial crisis," Journal of Financial Economics, Elsevier, vol. 97(3), pages 470-487, September.
    20. Sualihu, Mohammed Aminu & Rankin, Michaela & Haman, Janto, 2021. "The role of equity compensation in reducing inefficient investment in labor," Journal of Corporate Finance, Elsevier, vol. 66(C).
    21. Qiang Cheng & Fei Du & Brian Yutao Wang & Xin Wang, 2019. "Do Corporate Site Visits Impact Stock Prices?," Contemporary Accounting Research, John Wiley & Sons, vol. 36(1), pages 359-388, March.
    22. Broadstock, David & Chen, Xiaoqi, 2021. "Corporate site visits, private monitoring and fraud: Evidence from China," Finance Research Letters, Elsevier, vol. 40(C).
    23. Caggese, Andrea & Cuñat, Vicente & Metzger, Daniel, 2019. "Firing the wrong workers: Financing constraints and labor misallocation," Journal of Financial Economics, Elsevier, vol. 133(3), pages 589-607.
    24. Boochun Jung & Woo†Jong Lee & David P. Weber, 2014. "Financial Reporting Quality and Labor Investment Efficiency," Contemporary Accounting Research, John Wiley & Sons, vol. 31(4), pages 1047-1076, December.
    25. Lai, Shaojie & Li, Xiaorong & Chan, Kam C., 2021. "CEO overconfidence and labor investment efficiency," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    26. Hamermesh, Daniel S, 1995. "Labour Demand and the," Economic Journal, Royal Economic Society, vol. 105(430), pages 620-634, May.
    27. Ha, Joohyung & Feng, Mingming, 2018. "Conditional conservatism and labor investment efficiency," Journal of Contemporary Accounting and Economics, Elsevier, vol. 14(2), pages 143-163.
    28. Jiang, Xuanyu & Yuan, Qingbo, 2018. "Institutional investors' corporate site visits and corporate innovation," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 148-168.
    29. Hong, Xin & Zhuang, Zhuang & Kang, Di & Wang, Zhibin, 2019. "Do corporate site visits impact hedge fund performance?," Pacific-Basin Finance Journal, Elsevier, vol. 56(C), pages 113-128.
    30. Cao, Zhangfan & Rees, William, 2020. "Do employee-friendly firms invest more efficiently? Evidence from labor investment efficiency," Journal of Corporate Finance, Elsevier, vol. 65(C).
    31. Cui, Chenyu & John, Kose & Pang, Jiaren & Wu, Haibin, 2018. "Employment protection and corporate cash holdings: Evidence from China's labor contract law," Journal of Banking & Finance, Elsevier, vol. 92(C), pages 182-194.
    32. Sualihu, Mohammed Aminu & Yawson, Alfred & Yusoff, Iliyas, 2021. "Do analysts’' forecast properties deter suboptimal labor investment decisions? Evidence from Regulation Fair Disclosure," Journal of Corporate Finance, Elsevier, vol. 69(C).
    33. Qing (Sophie) Wang & Shaojie Lai & Xiaping (Jerry) Cao & Shiang Liu, 2022. "The effect of institutional investors’ site visits: evidence on corporate cash holdings," Applied Economics, Taylor & Francis Journals, vol. 54(41), pages 4767-4781, September.
    34. Cesare Fracassi & Geoffrey Tate, 2012. "External Networking and Internal Firm Governance," Journal of Finance, American Finance Association, vol. 67(1), pages 153-194, February.
    35. Kong, Dongmin & Liu, Shasha & Wang, Yanan, 2018. "Learning from outsiders: Do managers benefit from communication with market participants?," Finance Research Letters, Elsevier, vol. 26(C), pages 192-197.
    36. Charles Ward & Chao Yin & Yeqin Zeng, 2020. "Motivated monitoring by institutional investors and firm investment efficiency," European Financial Management, European Financial Management Association, vol. 26(2), pages 348-385, March.
    37. Efraim Benmelech & Nittai K. Bergman & Hyunseob Kim, 2022. "Strong Employers and Weak Employees: How Does Employer Concentration Affect Wages?," Journal of Human Resources, University of Wisconsin Press, vol. 57(S), pages 200-250.
    38. Zhaoyang Gu & Song Tang & Donghui Wu, 2020. "The Political Economy of Labor Employment Decisions: Evidence from China," Management Science, INFORMS, vol. 66(10), pages 4703-4725, October.
    39. Dong, Rui & Fisman, Raymond & Wang, Yongxiang & Xu, Nianhang, 2021. "Air pollution, affect, and forecasting bias: Evidence from Chinese financial analysts," Journal of Financial Economics, Elsevier, vol. 139(3), pages 971-984.
    40. Bushee, Brian J. & Gerakos, Joseph & Lee, Lian Fen, 2018. "Corporate jets and private meetings with investors," Journal of Accounting and Economics, Elsevier, vol. 65(2), pages 358-379.
    41. Samuel Bentolila & Marcel Jansen & Gabriel Jiménez, 2018. "Erratum: When Credit Dries Up: Job Losses in the Great Recession," Journal of the European Economic Association, European Economic Association, vol. 16(2), pages 560-560.
    42. Green, T. Clifton & Jame, Russell & Markov, Stanimir & Subasi, Musa, 2014. "Broker-hosted investor conferences," Journal of Accounting and Economics, Elsevier, vol. 58(1), pages 142-166.
    43. Kothari, S.P. & Leone, Andrew J. & Wasley, Charles E., 2005. "Performance matched discretionary accrual measures," Journal of Accounting and Economics, Elsevier, vol. 39(1), pages 163-197, February.
    44. Ronny Prabowo & Reggy Hooghiemstra & Paula Van Veen-Dirks, 2018. "State Ownership, Socio-political Factors, and Labor Cost Stickiness," European Accounting Review, Taylor & Francis Journals, vol. 27(4), pages 771-796, August.
    45. Khedmati, Mehdi & Sualihu, Mohammed Aminu & Yawson, Alfred, 2020. "CEO-director ties and labor investment efficiency," Journal of Corporate Finance, Elsevier, vol. 65(C).
    46. Shasha Liu & Yunhao Dai & Dongmin Kong, 2017. "Does It Pay to Communicate with Firms? Evidence from Firm Site Visits of Mutual Funds," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 44(5-6), pages 611-645, May.
    47. Jingbo Luo & Xiaorong Li & Kam C. Chan, 2020. "Political uncertainty and labour investment efficiency," Applied Economics, Taylor & Francis Journals, vol. 52(43), pages 4677-4697, September.
    48. Lee, Kyung Yun (Kailey) & Mo, Kyoungwon, 2020. "Do analysts improve labor investment efficiency?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(3).
    49. Kong, Dongmin & Liu, Shasha & Xiang, Junyi, 2018. "Political promotion and labor investment efficiency," China Economic Review, Elsevier, vol. 50(C), pages 273-293.
    50. Saci, Fateh & Jasimuddin, Sajjad M., 2021. "Does the research done by the institutional investors affect the cost of equity capital?," Finance Research Letters, Elsevier, vol. 41(C).
    51. Cella, Cristina, 2020. "Institutional investors and corporate investment," Finance Research Letters, Elsevier, vol. 32(C).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bai, Min & Fu, Yumei & Sun, Mingwei, 2023. "Corporate diversification and labor investment efficiency: Evidence from China," Economic Modelling, Elsevier, vol. 127(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sophie Wang, Qing & Lai, Shaojie & Pi, Shuwen & Anderson, Hamish, 2022. "Does directors' and officers' liability insurance induce empire building? Evidence from corporate labor investment," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    2. Li, Bin & Zhao, Qizi & Shahab, Yasir & Kumar, Satish, 2023. "High-speed rail construction and labor investment efficiency: Evidence from an emerging market," Research in International Business and Finance, Elsevier, vol. 64(C).
    3. Cao, June & Li, Wenwen & Hasan, Iftekhar, 2023. "The impact of lowering carbon emissions on corporate labour investment: A quasi-natural experiment," Energy Economics, Elsevier, vol. 121(C).
    4. He Xiao, 2023. "Institutional investors' corporate site visits and corporate investment efficiency," International Review of Finance, International Review of Finance Ltd., vol. 23(2), pages 359-392, June.
    5. Bai, Min & Fu, Yumei & Sun, Mingwei, 2023. "Corporate diversification and labor investment efficiency: Evidence from China," Economic Modelling, Elsevier, vol. 127(C).
    6. Yang, Jun & Lu, Jing & Xiang, Cheng, 2020. "Do disclosures of selective access improve market information acquisition fairness? Evidence from company visits in China," Journal of Corporate Finance, Elsevier, vol. 64(C).
    7. Chowdhury, Hasibul & Hossain, Ashrafee & Masum, Abdullah-Al & Zheng, Jiayi, 2023. "Does corporate sexual orientation equality affect labor investment efficiency?," Global Finance Journal, Elsevier, vol. 55(C).
    8. Cao, Jerry & Wang, Hanyang & Zhou, Sili, 2022. "Soft activism and corporate dividend policy: Evidence from institutional investors site visits," Journal of Corporate Finance, Elsevier, vol. 75(C).
    9. Zhang, Zhuang & Ntim, Collins G. & Zhang, Qingjing & Elmagrhi, Mohamed H., 2020. "Does accounting comparability affect corporate employment decision-making?," The British Accounting Review, Elsevier, vol. 52(6).
    10. Qi, Zhen & Chu, Chien-Chi & Zhou, Yixiao & Chen, Jian, 2022. "Corporate site visits and firm performance," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 598-608.
    11. 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).
    12. Liu, Huan & Hou, Canran, 2023. "The impact of institutional investors' corporate site visits on corporate social responsibility," Emerging Markets Review, Elsevier, vol. 55(C).
    13. Chowdhury, Hasibul & Hossain, Ashrafee & Tan, Kelvin & Zheng, Jiayi, 2022. "Do external labor market incentives improve labor investment efficiency?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 34(C).
    14. Sualihu, Mohammed Aminu & Rankin, Michaela & Haman, Janto, 2021. "The role of equity compensation in reducing inefficient investment in labor," Journal of Corporate Finance, Elsevier, vol. 66(C).
    15. Singh, Amanjot, 2022. "Oil Price uncertainty and labor investment efficiency," Energy Economics, Elsevier, vol. 116(C).
    16. Sualihu, Mohammed Aminu & Yawson, Alfred & Yusoff, Iliyas, 2021. "Do analysts’' forecast properties deter suboptimal labor investment decisions? Evidence from Regulation Fair Disclosure," Journal of Corporate Finance, Elsevier, vol. 69(C).
    17. Cao, Zhangfan & Rees, William, 2020. "Do employee-friendly firms invest more efficiently? Evidence from labor investment efficiency," Journal of Corporate Finance, Elsevier, vol. 65(C).
    18. Khedmati, Mehdi & Sualihu, Mohammed Aminu & Yawson, Alfred, 2020. "CEO-director ties and labor investment efficiency," Journal of Corporate Finance, Elsevier, vol. 65(C).
    19. Fan, Rui & Pan, Jianping & Yu, Minggui & Gao, Hao, 2022. "Corporate governance of controlling shareholders and labor employment decisions: Evidence from a parent board reform in China," Economic Modelling, Elsevier, vol. 108(C).
    20. Su, Fei & Feng, Xu & Tang, Songlian, 2021. "Do site visits mitigate corporate fraudulence? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 78(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jocaae:v:18:y:2022:i:3:s1815566922000273. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/journal-of-contemporary-accounting-and-economics .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.