The Effect of CEO Experience, Expertise and Ownership on Labor Investment Efficiency

Document Type : Original Article

Author

University of Tehran

Abstract

Investment in labor is one of the most important investments for any company. Recent research has highlighted the significance of labor investment efficiency. This research aims to identify the factors that influence labor investment efficiency. Specifically, we investigate the effects of CEO experience, expertise, and ownership on the company's labor investment efficiency. To achieve this goal, we analyzed a sample of 126 companies admitted to the Tehran Stock Exchange from 2016 to 2023, amounting to 1008 company-years. We utilized multiple regression analysis based on combined data. The results indicate that experienced CEOs significantly enhance the labor investment efficiency in companies. Conversely, CEO ownership leads to a decrease in labor investment efficiency. However, the findings did not reveal a significant relationship between CEO industry expertise and labor investment efficiency. Thus, we conclude that experienced CEOs positively contribute to labor investment efficiency. However, CEOs who own shares require more supervision to mitigate potential opportunistic behavior. This study contributes to the literature on CEO characteristics and labor investment efficiency, offering valuable insights for CEO selection to positively impact company labor investment.

Keywords

Main Subjects

References

Aflatooni, A., khazaei, M. (2016). Investigating the Effect of Accruals Quality and Disclosure Quality on Labor Investment Inefficiency. Accounting and Auditing Review, 23(3), 269-288. doi: 10.22059/ACCTGREV.2016.59776 [In Persian]
Afsay, A. (2024). The Effect of Financial Expertise and Experience of the Audit Committee Chair on Auditor Selection, Audit Fees and Audit Quality. Empirical Studies in Financial Accounting, 21(81). doi: 10.22054/qjma.2024.78707.2549 [In Persian]
Amri-Asrami, M., Jalali, F., Kazemi, F. (2023). The Effect of CEO's Power and Financial Knowledge on the Relation between Enterprise Risk and the Firm’s Performance. Judgment and Decision Making in Accounting and Auditing, 7,67-86. doi: 10.30495/jdaa.2023.705527 [In Persian]
Arabshahi, M., Kabiri, A., Behboodi, O. (2022). The Impact of Top Managers’ Knowledge Value on Knowledge Sharing Practices on Open Innovation and Organizational Performance. Scientific Journal of Strategic Management of Organizational Knowledge, 5(1), 165-191. DOR: 20.1001.1.26454262.1401.5.1.6.0 [In Persian]
Arab, R., Gholamrezapoor, M., Amirnia, N., Kazemi, S. P. (2021). CEO Power, Family Ownership and Audit Fees: Analysis of Alignment and Entrenchment Theories. Empirical Studies in Financial Accounting, 18(70), 167-193. doi: https://doi.org/10.22054/qjma.2021.52432.2154 [In Persian]
Barkema, H. G., Shvyrkov, O. (2007). Does top management team diversity promote or hamper foreign expansion? Strategic Management Journal 28 (7): 663-680.  
https://doi.org/10.1002/smj.604
Bertrand, M., A. Schoar. (2003). Managing with style: The effect of managers on firm policies. Quarterly Journal of Economics 118: 1169-1208. https://doi.org/10.1162/003355303322552775
Ben-Nasr, H., Alshwer, A.A. (2016). Does stock price informativeness affect labor investment efficiency? Finance. 38, 249–271. https://doi.org/10.1016/j.jcorpfin.2016.01.012
Bonabi Ghadim, R., Majidi, H. (2022). The Effect of Narcissism and CEO Power on the Investment Efficiency and Consistent Earnings Growth. Financial Management Strategy, 10(3), 203-224. doi:  10.22051/JFM.2020.30811.2354 [In Persian]
Cannella, A., Park, J., Lee, H. (2008). Top management team functional background diversity and firm performance: Examining the roles of team member colocation and environmental uncertainty. Academy of Management Journal. 51 (4): 768-784. https://doi.org/10.5465/AMJ.2008.33665310
Cao, Z., Rees, W., Zhang, Z. (2019). The effect of real earnings smoothing on corporate labour investment. The British Accounting Review, 101178.‏ https://doi.org/10.1016/j.bar.2023.101178
Dearborn, D., Simon, H. A. (1958). Selective perception: A note on the departmental identifications of executives. Sociometry, 21 (2): 140-144. https://doi.org/10.2307/2785898
Ebrahimi, A., Solgi, M., Vojoudi., Nobakht, A., Mosavi, M. (2022). managements overconfidence and efficiency of investment decisions. Budget and Finance Strategic Research, 3(3), 135-167. DOR: 20.1001.1.27171809.1401.3.3.5.2 [In Persian]
Fattahi, Y., Daryaei, A. A., Moradi, F. (2023). Cash flow volatility and labor investment efficiency in TSE. Budget and Finance Strategic Research, 4(4), 11-34. DOR: 20.1001.1.27171809.1402.4.4.1.7 [In Persian]
Filsaraei, M., Arian Tabar, A., radman, Z. (2021). The Moderating Role of Financial Constraints and Corporate Governance on the Relationship between CEO Managerial Ability and the Marginal Value of Cash. Budget and Finance Strategic Research, 2(3), 183-217. DOR: 20.1001.1.27171809.1400.2.3.6.6 [In Persian]
Habib, A., Ranasinghe, D. (2022). Labor investment efficiency and credit ratings. Finance Res. Lett. 4 (8), 102-124, https://doi.org/10.1016/j.frl.2022.102924
Hambrick, D. C., Mason, P. (1984). Upper echelons: The organization as a reflection of its top manager. The Academy of Management Review 9 (2): 1193-1206. https://doi.org/10.2307/258434
Hejazi, R., Kalhornia, H., Dadashi, I., Firooznia, A. (2018). Investigating the effect of stock price informativeness on labor investment efficiency. aapc 2018; 3 (5):209-232. doi: 10.29252/aapc.3.5.209 [In Persian]
Ghaly, M., Dang, V.A., Stathopoulos, K. (2020). Institutional investors’ horizons and corporate employment decisions. Finance. 64 101634. https://doi.org/10.1016/j.jcorpfin.2020.101634
Jung, B., Lee, W. J., Weber, D. P. (2014). Financial reporting quality and labor investment efficiency. Contemporary Accounting Research, 31(4), 1047-1076. https://doi.org/10.1111/1911-3846.12053 ‏
Karami, G., Mehrani, S., Boshrouyeh, S. B., Ezadpour, M., Mohebbi, M., Samavat, M. (2024). Political connections and labor investment efficiency. International Review of Economics & Finance, 89, 568-580.‏ https://doi.org/10.1016/j.iref.2023.10.010
Karami, G., Beik Boshrouyeh, S., Ezadpour, M. (2022). Investigating the Effect of Institutional Ownership and Ownership Concentration on Labor Investment Efficiency. Financial Research Journal, 23(4), 653-665. doi: 10.22059/FRJ.2021.333062.1007253 [In Persian]
Kamali Kermani, N. (2021). Features of CEO and Growth of Company Value: Quantitative Regression Analysis. Accounting and Auditing Research, 13(49), 175-194. doi: 10.22034/IAAR.2021.131578 [In Persian]
Khedmati, M., Sualihu, M.A., Yawson, A. (2020). CEO-director ties and labor investment efficiency. Finance. 65 101492. https://doi.org/10.1016/j.jcorpfin.2019.101492
Li, W., Rong, M., Wu, J. (2023). Does executives' overseas experience improve firms' labor investment efficiency? China Journal of Accounting Research, 16 (4). https://doi.org/10.1016/j.cjar.2023.100332
Larcker, D. F. (1983). The association between performance plan adoption and corporate capital investment. Journal of Accounting and Economics 5: 9-30. https://doi.org/10.1016/0165-4101(83)90003-4
Lisic, L. L., Neal, T. L., Zhang, I. X. (2016). CEO power, internal control quality, and audit committee effectiveness in substance versus. Contemporary Accounting Research, 1-39. https://doi.org/10.1111/1911-3846.12177
Mahdavi, G., Rezaei, G. (2015). Examining the relationship between board structure and financing constraints for the companies listed on Tehran Stock Exchange. Financial Research Journal, 17(1), 179-198. doi: 10.22059/JFR.2015.52760 [In Persian]
Mehrani, S., Samie, F. (2019). Impacts of Conditional Conservatism on Labor Investment Efficiency. Journal of Accounting Knowledge, 10(2), 137-156. doi: 10.22103/JAK.2019.13075.2847 [In Persian]
Miraeez, S. M. (2022). .Investigating the Relationship Between CEO Characteristics and their Interactive Composition with Financial Risk Volatility. Journal of Management and Sustainable Development Studies.1, 45-63. doi: 10.30495/msds.2022.1952574.1039 [In Persian]
Merz, M., and E. Yashiv. (2005). Labor and the Market Value. CEP Discussion Paper No. 690.
Plecnik, J. M., S. Wang. (2021). Top management team intrapersonal functional diversity and tax avoidance. Journal of Management Accounting Research 33 (1): 103-128. https://doi.org/10.2308/JMAR-19-058
Rezaei, G., Taghizadeh, R., Zeraatgari, R., Sadeghzadeh Maharlui, M. (2022). Investigating the Effect of Accounting Comparability on Labor Investment Efficiency: Moderating Role of Financing Constraint. Journal of Accounting Knowledge, 13(2), 129-150. doi: 10.22103/JAK.2021.17702.3501 [In Persian]
Rezaei, G., Taghizadeh, R., Sadeghzadeh Maharlui, M., Zeraatgari, R. (2022). The effects of labor investment inefficiency on corporate tax. Financial Accounting Knowledge, 8(4), 109-133. doi: 10.30479/JFAK.2021.15873.2888 [In Persian]
Steinbach, A. L., T. R. Holcomb, R. M. Holmes, C. E. Devers, and A. A. Cannella. (2017). Top management team incentive heterogeneity, strategic investment behavior, and performance: A contingency theory of incentive. Strategic Management Journal 38: 1701-1720. https://doi.org/10.1002/smj.2628
Shi, Huaizhi. (2024). Managerial ownership and labor income share. Finance Research Letters, Volume 62. https://doi.org/10.1016/j.frl.2024.105183
Taheri Abed, R., Alinezhad Sarokolaei, M., Faghani Makerani, K. (2018). Ability, CEOs’s Financial Knowledge and Financial Reporting Transparency. Financial Accounting Knowledge, 5(2), 85-110. doi: 10.22103/JAK.2018.11902.2661 [In Persian]
Taylor, G., Al-Hadi, A., Richardson, G., Alfarhan, U., Al-Yahyaee, K. (2019). Is there a relation between labor investment inefficiency? Economic Modelling, 82, 185-201.‏ https://doi.org/10.1016/j.econmod.2019.01.006
Williamson, M. (1963). Managerial discretion. American Economic Review 53 (5): 1032-1057. https://www.jstor.org/stable/1812047
Budget and Finance Strategic Research
Volume 5, Issue 2 - Serial Number 18
Summer Quarterly
June 2024
Pages 129-153

Files

History

  • Receive Date: 06 April 2024
  • Revise Date: 22 May 2024
  • Accept Date: 26 June 2024

Share

How to cite

Statistics