Analyst following, group affiliation, and labor investment efficiency: Evidence from Korea

Abstract

This paper studies how analysts' group affiliation affects firms' labor investment efficiency. Using a 2001-2017 sample of Korean public companies, we find that labor investment efficiency increases when there are more unaffiliated analysts following business group (chaebol) firms. Our regression results also suggest that an increase in labor investment efficiency is attributed to a reduction in firms' over-firing problem. However, affiliated analysts are not found to influence firms' labor investment efficiency. We further document that the positive influence of unaffiliated analysts on labor investment efficiency holds when firms have high cash holdings. Our results are robust to different model specifications, including two-stage least square regression and firm-size matching.