Home > Research > Publications & Outputs > Institutional Investors’ Horizons and Corporate...

Electronic data

  • Labor_Horizon_accepted

    Rights statement: This is the author’s version of a work that was accepted for publication in Journal of Corporate Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Corporate Finance, 64, 2020 DOI: 10.1016/j.jcorpfin.2020.101634

    Accepted author manuscript, 850 KB, PDF document

    Embargo ends: 8/11/21

    Available under license: CC BY-NC-ND: Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License

Links

Text available via DOI:

View graph of relations

Institutional Investors’ Horizons and Corporate Employment Decisions

Research output: Contribution to journalJournal article

E-pub ahead of print
Close
Article number101634
<mark>Journal publication date</mark>1/10/2020
<mark>Journal</mark>Journal of Corporate Finance
Volume64
Number of pages29
Publication statusE-pub ahead of print
Early online date8/05/20
Original languageEnglish

Abstract

Monitoring by long-term investors should reduce agency conflicts in firms’ labor investment choices. Consistent with this argument, we find that abnormal net hiring, measured as the absolute deviation from optimal net hiring predicted by economic fundamentals, decreases in the presence of institutional investors with longer investment horizons. Firms dominated by long-term shareholders reduce both over-investment (over-hiring and under-firing) and under-investment (under-hiring) in employees. The monitoring role of long-term investors is stronger for firms facing higher labor adjustment costs both in absolute terms and relative to capital adjustment costs, and those for which human capital is regarded as more important. The effect is also more pronounced for firms that have stronger incentives and/or more opportunities to deviate from expected net hiring. We address endogeneity concerns by exploiting exogenous changes to long-term institutional ownership resulting from annual reconstitutions of the Russell indexes.

Bibliographic note

This is the author’s version of a work that was accepted for publication in Journal of Corporate Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Corporate Finance, 64, 2020 DOI: 10.1016/j.jcorpfin.2020.101634