We examine the impact of corporate diversification on labor investment efficiency. Using a large sample of Chinese listed companies, we find that diversified firms suffer from severer inefficiency in labor investment than single-segment firms. Elevated external financial constraints and agency costs partially drive the result. The effect is stronger on companies with less analyst coverage, companies that rely more on highly skilled labor, and those in a worse competitive position. In addition, the effect is stronger for non-state-owned-enterprises (non-SOEs) than SOEs. The results are robust to self-selection bias and other endogeneity concerns. Overall, our results are consistent with the view that corporate diversification negatively affects labor investment efficiency due to exacerbated information asymmetry, agency conflicts, and capital misallocation.
|Effective start/end date||1/01/22 → …|
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