Stock Liquidity and Corporate Labor Investment

Posted: 5 Jan 2022

See all articles by Mong Shan Ee

Mong Shan Ee

Deakin University

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

He Huang

The University of Sydney, Discipline of Finance

Date Written: December 8, 2021

Abstract

Labor is among the most crucial factors of production that maintain a firm’s competitiveness. Given its economic importance, drivers of firms’ labor investment policy have gained increasing attention in the financial economics literature. This study investigates the relation between stock liquidity and labor investment efficiency. We establish a causal relation between the two phenomena using an exogenous shock to liquidity: the 2001 decimalization of stock trading. We find that labor investment efficiency improves following an increase in stock liquidity, and the effect is prevalent in firms experiencing overinvestment in labor. Our findings further support the argument that stock liquidity improves the efficiency of labor investment by enhancing governance through shareholder exit threat.

Keywords: stock liquidity, labor investment efficiency

JEL Classification: G11, J20

Suggested Citation

Ee, Mong Shan and Hasan, Iftekhar and Huang, He, Stock Liquidity and Corporate Labor Investment (December 8, 2021). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4001006

Mong Shan Ee

Deakin University ( email )

75 Pigdons Road
Victoria, Victoria 3216
Australia

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

He Huang (Contact Author)

The University of Sydney, Discipline of Finance ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

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