Do corporate site visits by analysts and institutional investors increase labor investment efficiency?

• Published in: Asian review of accounting 2024-11, Vol.32 (5), p.811-840
• Main Authors: Li, Wenfei, Tang, Zhenyang, Chen, Chufen
• Format: Article
• Language: English
• Subjects: Asymmetry; Consolidation; Corporate governance; Earnings management; Efficiency; Equity financing; Financial reporting; Hypotheses; Institutional investments; Investment advisors; Investors; Labor costs; Stock options; Stock prices
• ISSN: 1321-7348; 1758-8863
• DOI: 10.1108/ARA-09-2023-0241

PurposeCorporate site visits increase labor investment efficiency.Design/methodology/approachOur empirical model for the baseline analysis follows those of Jung et al. (2014) and Ghaly et al. (2020).FindingsWe show that corporate site visits are associated with significantly higher labor investment efficiency; more specifically, site visits reduce both over-hiring and under-hiring of employees. The effect of site visits on labor investment efficiency is more pronounced for firms with higher labor adjustment costs, greater financial constraints, weaker corporate governance and lower financial reporting quality. We also find that site visits mitigate labor cost stickiness.Originality/valueFirst, while the literature has suggested how the presence of institutional investors and analysts may affect labor investment decisions, we focus on institutional investors and analysts’ activities and interactions with firm executives. We provide direct evidence that institutional investors and analysts may use corporate site visits to improve labor investment efficiency. Second, our study adds to a line of recent studies on how corporate site visits reduce information asymmetry and agency conflicts. We show that corporate site visits allow institutional investors and analysts to influence labor investment efficiency. We also provide new evidence that corporate site visits reduce labor cost stickiness.