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

• Published in: Research in international business and finance 2024-08, Vol.71, p.102491, Article 102491
• Main Authors: Lai, Jinming, Ke, Jinjun, Lin, Shuping, Zhang, Pengdong, Zhang, Qihao
• Format: Article
• Language: English
• Subjects: Business environment; Improvement of labor dispute resolution; Labor income share; Upgrading of human capital
• ISSN: 0275-5319
• DOI: 10.1016/j.ribaf.2024.102491

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. [Display omitted] •This paper explores how the business environment affects firms’ labor income share.•We find that an optimal business environment can enhance the level of labor income share.•A better business environment increases labor income share by fostering human capital and improves labor dispute resolution.•The effect is weaker in firms with high labor intensity, state ownership, inland locations, and low institutional holdings.•The paper contribute to literature on labor income share and provide policy implications for a better business environment.