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This study investigates the impact of material internal control weaknesses on corporate employment decisions. We find that, on average, ineffective internal control is significantly related to lower efficiency in employment decisions. We also find that firms with material internal control weaknesses are associated with both over-investment and under-investment in labour. Further analysis suggests that the negative impact of internal control weaknesses on employment decisions is predominantly driven by more severe types of weakness that have a pervasive effect on internal reporting and those related to core accounts. Moreover, our change analysis shows that the remediation of material weaknesses contributes to an improvement in labour investment efficiency. Finally, consistent with the effective monitoring role of high-skilled employees, our subsample analysis indicates that the negative impact of internal control weaknesses on labour investment efficiency is mitigated in firms with high reliance on human capital. Our findings are robust to various sensitivity checks including propensity score matching, entropy balancing, removal of observations during the financial crisis, various measures for the efficiency of investment in labour, and the adjustment for employing residuals as outcome variables. Overall, our study contributes to the ongoing debate on the net benefits of SOX 404 by highlighting the significant value of internal control systems to efficient human capital investment and provides timely implications for managers and regulators.

This paper investigates the impact of business strategy on firms’ trade credit policies. We find that firms following an innovation-oriented strategy (prospectors) offer significantly more trade credit to their customers than those following an efficiency-oriented strategy (defenders). Furthermore, by exploiting two exogenous shocks to the supplies of high-skill employees and bank credit, we find that prospectors curtail trade credit in response to the reduction of talent mobility following the adoption of Inevitable Disclosure Doctrine, whereas defenders significantly increase provisions of trade credit following the increase in bank credit supply due to the relaxation in interstate branching regulations. Additional evidence substantiates that prospectors increasing trade credit provisions enjoy higher sales generation efficiency and superior performance. Finally, our supply chain analysis documents that prospectors also receive significantly more trade credit from their suppliers. Collectively, our findings highlight that business strategy is an important yet intrinsic determinant of supply chain financing.

This paper explores the primary role of financial analysts in the context of unionised firms, where investors have greater information demand. Previous literature suggests that labour unions create substantial uncertainty in firms and undermine the information environment, while another strand of literature argues that analysts devote more effort to generating valuable information through original research in the case of heightened uncertainty or information asymmetry. To date, it is unclear whether financial analysts, as professional information intermediaries, are affected by organised labour. Using a large U.S. sample over the period of 1983-2015, we find that the labour unionisation rate is associated with lower forecast accuracy and higher forecast dispersion, suggesting that financial analysts predominantly play a “complementary role” rather than a “substitutive role” when firms are facing significant uncertainty in human capital. Overall, our study has important implications for managers, financial analysts and regulators, by highlighting the value and hence the necessity of non-financial information disclosure specific to a key intangible asset of firms, i.e., their employees.

This paper investigates the impact of employee stock options (ESO) on labor unions’ likelihood to initiate strikes. Using the unique setting of union elections in U.S. firms, we find that firms offering higher levels of equity incentives to their employees are exposed to significantly lower post-unionization strike risk. Furthermore, firms strategically grant more stock option incentives to employees in response to the unionization of the labor force. The increase in option incentives is more pronounced among firms holding union elections in states with stronger union bargaining power and when the strike risk is perceived to be higher.

This paper investigates the effect of corporate social responsibility (CSR) spending on labour unions’ propensity to initiate strikes. Given limited financial resources, we posit that firms’ inability to satisfy the demands from all of their stakeholders leads to resource competition among those stakeholders. By exploiting the unique setting of union elections in U.S. firms as plausibly exogenous shocks to labour power, we employ a triple-differences specification and find that firms with high levels of (non-employee) CSR spending are exposed to a significantly higher risk of union strikes. We interpret this finding as evidence consistent with CSR spending intensifying resource competition between employees and other stakeholders. We also document evidence that firms strategically curtail CSR expenditure in non-employee dimensions in response to unionisation in order to mitigate the increased strike risk. Such downward adjustment in CSR spending, however, is less pronounced in financially constrained firms, firms in “sin” industries and firms facing high levels of product market competition, due to their strong incentives to signal quality through CSR spending. Overall, our study sheds light on the inter-stakeholder relationship through the lens of a powerful stakeholder, i.e., organised labour, and has important implications for managers facing severe labour risk.

This study investigates the impact of trade secrets protection on corporate employment decisions. By exploiting the staggered adoption of the Inevitable Disclosure Doctrine (IDD) by the U.S. state courts as an exogenous shock that significantly reduces employee mobility, we employ a difference-in-differences (DiD) approach and find that the adoption of the IDD, on average, leads to higher deviation from the optimal employment level explained by the underlying economics (i.e., lower labor investment efficiency) for firms headquartered in that state, whilst the rejection of the previously adopted IDD results in lower deviation from the optimal employment level (i.e., higher labor investment efficiency). Further analyses show that the impact of the IDD adoption on corporate employment decisions is primarily driven by firms’ overinvestment in labor, suggesting that firms strategically engage in precautionary human capital hoarding in response to the reduced talent supply in the labor market and consequently higher labor adjustment costs. Our cross-sectional analyses show that the impact of the IDD adoptions on corporate employment decisions is more pronounced for (1) firms in high-skill industries and (2) firms facing high levels of product market competition. Overall, our findings indicate that the trade secrets protection environment can be an influential determinant for labor investment practices and have implications for both policymakers and industry practitioners.