Institutional investors’ site visits and corporate employment decision-making

• Published in: Journal of contemporary accounting & economics Vol. 18; no. 3; p. 100332
• Main Authors: Lai, Shaojie, Li, Xiaorong, Liu, Shiang, Wang, Qing Sophie
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01.12.2022
• Subjects: Corporate governance; Corporate site visits; Financial constraints; Information quality; Labor investment inefficiency; Financial constraints; Corporate governance; Information quality; Corporate site visits; Labor investment inefficiency
• ISSN: 1815-5669
• DOI: 10.1016/j.jcae.2022.100332

•Corporate site visits (CSVs) are negatively associated with 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 a series of additional tests including endogeneity concerns and selection bias.•Further analysis suggests that CSVs decrease labor cost stickiness.•Labor investment inefficiency leads to lower future performance. 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.