Does corporate digitalization promote labor investment efficiency? Evidence from Chinese listed companies

Abstract

This study examines whether and how corporate digitalization affects labor investment practices. Using a sample of Chinese listed companies from 2007 to 2023, we find that corporate digital development is positively associated with labor investment efficiency. Mechanism tests show that corporate digitalization can facilitate precise judgment of labor input scales, accelerate employment adjustment responsiveness, recruit high-quality potential workforce, and improve management oversight, thus contributing to making efficient labor investment decisions. Cross-sectional tests indicate that the positive impact of corporate digital development is more prominent for firms located in regions with stronger labor protection systems, industries with higher competition levels and those non-state-owned enterprises. Moreover, corporate digitalization can curb both over- and underinvestment in labor resources, and this effect is primarily manifested in firm’s hiring practices. Our findings contribute to the literature on the determinants of corporate labor investment efficiency and provide practice insight into the role of corporate digitalization in firm’s decision-making.