CEO-director ties and labor investment efficiency

By Mehdi Khedmati, M. Sualihu, A. Yawson. 2020

226 citations recorded by the source corpus.

Abstract We examine the impact of CEO-director ties on labor investment efficiency. Using an aggregate measure of CEO-director ties we find that CEOs who have strong ties with independent board members are associated with inefficient labor investment. The effect is stronger in firms that rely more on skilled labor and those that are financially constrained, and that inefficient labor investment exacerbates labor cost stickiness. Our results are robust to selection bias, endogeneity concerns, and alternative explanations. Overall, the results are consistent with the view that stronger CEO ties to independent board members makes monitoring ineffective, which, in turn, aggravates the inefficient labor investment problem. Thus, we identify a potential channel through which CEO-director ties can be detrimental to shareholder value.

Subfields: Accounting

View Paper: https://www.semanticscholar.org/paper/d2313200bfc77288e9005c256e767eecb24b92d0

Citations in the corpus

• Do employee-friendly firms invest more efficiently? Evidence from labor investment efficiency (2020, unknown): “…treatment and labor investment efficiency, we follow previous empirical studies and use firms’ net hiring, measured as the percentage change in the number of employees (Ben-Nasr and Alshwer, 2016; Ghaly et al., 2017; Jung et al., 2014; Khedmati et al., 2019; Pinnuck and Lillis, 2007).”