Human Resource Systems and Corporate Investment Efficiency

48 Pages Posted: 30 Mar 2020 Last revised: 1 Jun 2021

See all articles by Seraina C. Anagnostopoulou

Seraina C. Anagnostopoulou

University of Piraeus, Department of Banking and Financial Management

Argyro Avgoustaki

ESCP Business School

Beatriz Garcia Osma

Universidad Carlos III de Madrid - Department of Business Administration; European Corporate Governance Institute (ECGI)

Date Written: May 31, 2021

Abstract

Using agency theory, in this study we examine the effect of systems of human resource practices on investment efficiency, where investment takes the form of purchase of buildings or plants, investments in R&D and acquisitions. We argue that employees at all levels of an organization play a significant role in efficient corporate investment. Thus, human resource systems aimed at improving employee quality should be associated with efficient corporate investment. However, the outcome of such systems can be controversial, as they are often ineffective, costly, have dis-synergies and deprive other types of investments of funding, which could lead to deviations from optimal investment. Using U.S. firms for the period 2002-2016, our findings reveal that systems of human resource practices are negatively associated with investment efficiency, inducing both over- and under-investment. Results are driven mainly by an HR system with a more direct cash cost, and are more pronounced with respect to investments in R&D and acquisitions. Overall, our findings are consistent with human resource systems not aligning employees’ and shareholders’ interests, with consequences for investment efficiency.

Keywords: Human Resource Practices, Employee Quality, Investment Efficiency, Over-Investment, Under-Investment

JEL Classification: O15, G10, G31

Suggested Citation

Anagnostopoulou, Seraina C. and Avgoustaki, Argyro and Garcia Osma, Beatriz, Human Resource Systems and Corporate Investment Efficiency (May 31, 2021). Available at SSRN: https://ssrn.com/abstract=3563037 or http://dx.doi.org/10.2139/ssrn.3563037

Seraina C. Anagnostopoulou (Contact Author)

University of Piraeus, Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
Piraeus, 18534
Greece

Argyro Avgoustaki

ESCP Business School ( email )

537 FINCHLEY ROAD
LONDON, NW37BG
United Kingdom

Beatriz Garcia Osma

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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