Institutional Investors’ Horizons and Corporate Employment Decisions

Ghaly, Mohamed and Anh Dang, Viet and Stathopoulos, Konstantinos (2020) Institutional Investors’ Horizons and Corporate Employment Decisions. Journal of Corporate Finance, 64. ISSN 0929-1199

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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.

Item Type:
Journal Article
Journal or Publication Title:
Journal of Corporate Finance
Additional Information:
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
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/1400/1408
Subjects:
ID Code:
143798
Deposited By:
Deposited On:
05 May 2020 08:15
Refereed?:
Yes
Published?:
Published
Last Modified:
15 Sep 2020 05:03