IDEAS home Printed from https://ideas.repec.org/a/eee/riibaf/v71y2024ics0275531924002848.html

Business environment optimization and labor income share of enterprises: Evidence from China

Author

Listed:
  • Lai, Jinming
  • Ke, Jinjun
  • Lin, Shuping
  • Zhang, Pengdong
  • Zhang, Qihao

Abstract

The external business environment in which enterprises operate is often subject to constant change. This paper explores how the business environment affects firms’ labor income share. Utilizing a micro-level dataset of China’s A-share listed companies from 2010 to 2020, we find that an optimal business environment enhances the labor income share. Mechanism tests reveal that a better business environment contributes to the increase in labor income share by fostering human capital upgrading and improving labor dispute resolution. Further analysis demonstrates that the positive effect is more pronounced for firms with lower labor intensity and non-state ownership, and also for firms with coastal locations and higher institutional investor shareholdings. These findings contribute to existing literature on factors influencing labor income share and also provide valuable policy implications for promoting the development of a better business environment.

Suggested Citation

  • Lai, Jinming & Ke, Jinjun & Lin, Shuping & Zhang, Pengdong & Zhang, Qihao, 2024. "Business environment optimization and labor income share of enterprises: Evidence from China," Research in International Business and Finance, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:riibaf:v:71:y:2024:i:c:s0275531924002848
    DOI: 10.1016/j.ribaf.2024.102491
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0275531924002848
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ribaf.2024.102491?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

    for a different version of it.

    References listed on IDEAS

    as
    1. John Hutchinson & Damiaan Persyn, 2012. "Globalisation, concentration and footloose firms: in search of the main cause of the declining labour share," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 148(1), pages 17-43, April.
    2. Huang, Guan-Ying & Shen, Carl Hsin-han & Wu, Zhen-Xing, 2023. "Firm-level political risk and debt choice," Journal of Corporate Finance, Elsevier, vol. 78(C).
    3. Bah, El-hadj & Fang, Lei, 2015. "Impact of the business environment on output and productivity in Africa," Journal of Development Economics, Elsevier, vol. 114(C), pages 159-171.
    4. Khedmati, Mehdi & Sualihu, Mohammed Aminu & Yawson, Alfred, 2020. "CEO-director ties and labor investment efficiency," Journal of Corporate Finance, Elsevier, vol. 65(C).
    5. Lixin Colin Xu, 2011. "The Effects of Business Environments on Development: Surveying New Firm-level Evidence," The World Bank Research Observer, World Bank, vol. 26(2), pages 310-340, August.
    6. Cui, Guanghui & Zhang, Yi & Ma, Jingwen & Yao, Wenyun, 2023. "Does environmental regulation affect the labor income share of manufacturing enterprises? Evidence from China," Economic Modelling, Elsevier, vol. 123(C).
    7. Chen, Chuanglian & Wang, Shudan & Yao, Shujie & Lin, Yuting, 2023. "Does digital transformation increase the labor income share? From a perspective of resources reallocation," Economic Modelling, Elsevier, vol. 128(C).
    8. Shuguang Liu & Jiayi Wang, 2022. "Coupling Coordination between Marine S&T Innovation and the High-Quality Development of the Marine Economy: A Case Study of China’s Coastal Provinces," Sustainability, MDPI, vol. 14(12), pages 1-29, June.
    9. Niels Bosma & Mirjam van Praag & Roy Thurik & Gerrit de Wit, 2004. "The Value of Human and Social Capital Investments for the Business Performance of Startups," Small Business Economics, Springer, vol. 23(3), pages 227-236, October.
    10. Andres Donangelo & Stijn Van Nieuwerburgh, 2021. "Untangling the Value Premium with Labor Shares," Review of Economic Studies, Oxford University Press, vol. 34(1), pages 451-508.
    11. Nannan Wang & Dengfeng Cui & Chuanzhen Geng & Zefan Xia, 2022. "The role of business environment optimization on entrepreneurship enhancement," Journal of Economic Analysis, Anser Press, vol. 1(2), pages 66-81, December.
    12. A. B. Atkinson, 2009. "Factor shares: the principal problem of political economy?," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 25(1), pages 3-16, Spring.
    13. Simon Commander & Jan Svejnar, 2011. "Business Environment, Exports, Ownership, and Firm Performance," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 309-337, February.
    14. El-Hadj Bah & Lei Fang, 2015. "Working Paper - 219 - Impact of the business Environment on Output and Productivity in Africa," Working Paper Series 2159, African Development Bank.
    15. Xianhai Huang & Sheng Xu & Jing Lu, 2011. "Trade Liberalisation and Labour Income Share Variation: An Interpretation of China’s Deviation from the Stolper–Samuelson Theorem," The World Economy, Wiley Blackwell, vol. 34, pages 1071-1087, July.
    16. Yang, Guang-Zhao & Si, Deng-Kui & Ning, Guang-Jie, 2023. "Does digital transformation reduce the labor income share in enterprises?," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1526-1538.
    17. Jan De Loecker & Jan Eeckhout & Gabriel Unger, 2020. "The Rise of Market Power and the Macroeconomic Implications [“Econometric Tools for Analyzing Market Outcomes”]," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(2), pages 561-644.
    18. David Autor & David Dorn & Lawrence F Katz & Christina Patterson & John Van Reenen, 2020. "The Fall of the Labor Share and the Rise of Superstar Firms [“Automation and New Tasks: How Technology Displaces and Reinstates Labor”]," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(2), pages 645-709.
    19. Coe, David T. & Helpman, Elhanan & Hoffmaister, Alexander W., 2009. "International R&D spillovers and institutions," European Economic Review, Elsevier, vol. 53(7), pages 723-741, October.
    20. Simcha Barkai, 2020. "Declining Labor and Capital Shares," Journal of Finance, American Finance Association, vol. 75(5), pages 2421-2463, October.
    21. Contractor, Farok J. & Dangol, Ramesh & Nuruzzaman, N. & Raghunath, S., 2020. "How do country regulations and business environment impact foreign direct investment (FDI) inflows?," International Business Review, Elsevier, vol. 29(2).
    22. Stephan Kampelmann & François Rycx & Yves Saks & Ilan Tojerow, 2018. "Does education raise productivity and wages equally? The moderating role of age and gender," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-37, December.
    23. Wang, Nannan & Cui, Dengfeng & Dong, Yin, 2023. "Study on the impact of business environment on private enterprises' technological innovation from the perspective of transaction cost," Innovation and Green Development, Elsevier, vol. 2(1).
    24. Andres Donangelo, 2021. "Untangling the Value Premium with Labor Shares [A unified model of investment under uncertainty]," The Review of Financial Studies, Society for Financial Studies, vol. 34(1), pages 451-508.
    25. Julian Atanassov & E. Han Kim, 2009. "Labor and Corporate Governance: International Evidence from Restructuring Decisions," Journal of Finance, American Finance Association, vol. 64(1), pages 341-374, February.
    26. Yao, Wenyun & Zhang, Yi & Ma, Jingwen & Cui, Guanghui, 2023. "Does environmental regulation affect capital-labor ratio of manufacturing enterprises: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 86(C).
    27. Meghana Ayyagari & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2008. "How Important Are Financing Constraints? The Role of Finance in the Business Environment," The World Bank Economic Review, World Bank, vol. 22(3), pages 483-516, November.
    28. Nannan Wang & Dengfeng Cui & Chuanzhen Geng & Zefan Xia, 2022. "The role of business environment optimization on entrepreneurship enhancement," Journal of Economic Analysis, Anser Press, vol. 1(2), pages 66-81, December.
    29. Jack Favilukis & Xiaoji Lin & Xiaofei Zhao, 2020. "The Elephant in the Room: The Impact of Labor Obligations on Credit Markets," American Economic Review, American Economic Association, vol. 110(6), pages 1673-1712, June.
    30. Borochin, Paul & Yang, Jie, 2017. "The effects of institutional investor objectives on firm valuation and governance," Journal of Financial Economics, Elsevier, vol. 126(1), pages 171-199.
    31. Li, Bing & Liu, Chang & Sun, Stephen Teng, 2021. "Do corporate income tax cuts decrease labor share? Regression discontinuity evidence from China," Journal of Development Economics, Elsevier, vol. 150(C).
    32. Wei, Xiahai & Jiang, Feng & Chen, Yu, 2023. "Who pays for environmental protection? The impact of green tax reform on labor share in China," Energy Economics, Elsevier, vol. 125(C).
    33. Donangelo, Andres & Gourio, François & Kehrig, Matthias & Palacios, Miguel, 2019. "The cross-section of labor leverage and equity returns," Journal of Financial Economics, Elsevier, vol. 132(2), pages 497-518.
    34. Chen, Sicen & Liu, Siyi & Zhang, Junsheng & Zhang, Pengdong, 2023. "The effect of extreme rainfall on corporate financing policies," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 670-685.
    35. S Poon, 2000. "Business environment and internet commerce benefit—a small business perspective," European Journal of Information Systems, Taylor & Francis Journals, vol. 9(2), pages 72-81, June.
    36. Wang, Jiaxin & Yuan, Xue & Huang, Xiang & Liu, Chengxin & Zhang, Pengdong, 2024. "Can digitalization facilitate cross-border M&A? Evidence from Chinese A-share listed companies," Research in International Business and Finance, Elsevier, vol. 67(PA).
    37. Stephanie Seguino & Elissa Braunstein, 2019. "The Costs of Exclusion: Gender Job Segregation, Structural Change and the Labour Share of Income," Development and Change, International Institute of Social Studies, vol. 50(4), pages 976-1008, July.
    38. John (Jianqiu) Bai & Daniel Carvalho & Gordon M. Phillips, 2018. "The Impact of Bank Credit on Labor Reallocation and Aggregate Industry Productivity," Journal of Finance, American Finance Association, vol. 73(6), pages 2787-2836, December.
    39. Chunlai Chen, 2015. "Do Inland Provinces Benefit from Coastal Foreign Direct Investment in China?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 23(3), pages 22-41, May.
    40. Stuart A. Gabriel & Stuart S. Rosenthal, 2004. "Quality of the Business Environment Versus Quality of Life: Do Firms and Households Like the Same Cities?," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 438-444, February.
    41. Chava, Sudheer & Danis, András & Hsu, Alex, 2020. "The economic impact of right-to-work laws: Evidence from collective bargaining agreements and corporate policies," Journal of Financial Economics, Elsevier, vol. 137(2), pages 451-469.
    Full references (including those not matched with items on IDEAS)

    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. Liu, Huilong & Wang, Yifei & Xie, Jing & Yin, Jun, 2026. "Judicial independence and firms’ labor share: Evidence from a quasi-natural experiment in China," Journal of Asian Economics, Elsevier, vol. 102(C).
    2. Guo, Xiuhong & Hao, Qichao & Huang, Qixing, 2026. "Does venture capital ownership suppress labor income share?," Finance Research Letters, Elsevier, vol. 88(C).
    3. Roya Taherifar & Mark J. Holmes & Gazi M. Hassan, 2023. "The drivers of labour share and impact on pay inequality: A firm-level investigation," Working Papers in Economics 23/03, University of Waikato.
    4. Si, Deng-Kui & Wang, Meng & Wang, Jiaming & Li, Hong-Xue, 2024. "Does banking competition increase corporate labor income share? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 84(C), pages 440-454.
    5. Wang, Liang & Hu, Jun & Yao, Daifei & Skibniewski, Miroslaw J., 2025. "Indelible imprint: CEOs’ poverty experience and corporate labor income share," Journal of Business Research, Elsevier, vol. 199(C).
    6. Wei, Xiahai & Jiang, Feng & Su, Yaqin, 2024. "More green, less labor gains? Green factory and labor income share in China," Energy Economics, Elsevier, vol. 133(C).
    7. Jacob, Tinu Iype & Paul, Sunil, 2024. "Labour income share, market power and automation: Evidence from an emerging economy," Structural Change and Economic Dynamics, Elsevier, vol. 69(C), pages 37-45.
    8. Jeon, Haejun & Cui, Xue & Zhang, Chuanqian, 2023. "The effects of labor choice on investment and output dynamics," Journal of Corporate Finance, Elsevier, vol. 83(C).
    9. Xu, Yuanbin & Wei, Yuan & Zeng, Xin & Yu, Haiqing & Chen, Hongjie, 2024. "Big data development and labor income share: Evidence from China's national big data comprehensive pilot zones," Economic Analysis and Policy, Elsevier, vol. 84(C), pages 1415-1437.
    10. Bom, Pedro R.D. & Erauskin, Iñaki, 2022. "Productive government investment and the labor share," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 347-363.
    11. Liu, Tingyu & Huang, Peng & Wang, Qiaoru, 2025. "The impact of digital innovation on labor share: Evidence from Chinese firms," International Review of Economics & Finance, Elsevier, vol. 99(C).
    12. Yu, Fan & Zheng, Shilin & Zheng, Shuhong & Guo, Chenhao, 2024. "Does carbon ETS affect the distribution of labor's slice of the factor income pie? From the low carbon transition perspective," Energy Economics, Elsevier, vol. 134(C).
    13. Tomás N. Rotta, 2025. "Intellectual Monopoly and Income Inequality in the United States, 1948–2021: A Long-Run Analysis," Review of Radical Political Economics, Union for Radical Political Economics, vol. 57(4), pages 826-849, December.
    14. Jiacai Xiong & Linghong Chen & Dongwei Su & Kejing Chen, 2025. "Tax Enforcement and Corporate Labor Income Share: Evidence From a Quasi‐Natural Experiment in China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 46(7), pages 3959-3975, October.
    15. Bu, Xiaoning & Zhang, Yuanhao & Xing, Yafei, 2024. "Joint governance corporate alliance and the share of labour income: Evidence from China's private firms," Economic Modelling, Elsevier, vol. 139(C).
    16. Francesco Bloise & Irene Brunetti & Valeria Cirillo, 2022. "Firm strategies and distributional dynamics: labour share in Italian medium-large firms," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 39(2), pages 623-655, July.
    17. Guo, Bingnan & Feng, Weizhe & Lin, Ji, 2024. "The impact of green finance on labor income share: Evidence from green finance reform and innovation pilot zone," Economic Analysis and Policy, Elsevier, vol. 84(C), pages 1347-1358.
    18. Del Río, Fernando & Rebelo, Francisco, 2025. "OECD labour share trends: Factor efficiency vs. market distortions in a neoclassical framework," Economic Analysis and Policy, Elsevier, vol. 87(C), pages 2554-2591.
    19. Bellocchi, Alessandro & Travaglini, Giuseppe, 2023. "Can variable elasticity of substitution explain changes in labor shares?," Journal of Macroeconomics, Elsevier, vol. 76(C).
    20. Stephanie F. Cheng & Dushyantkumar Vyas & Regina Wittenberg-Moerman & Wuyang Zhao, 2025. "Exposure to superstar firms and financial distress," Review of Accounting Studies, Springer, vol. 30(2), pages 1355-1396, June.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    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:riibaf:v:71:y:2024:i:c:s0275531924002848. 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: http://www.elsevier.com/locate/ribaf .

    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.