Document Type

Article

Source of Publication

International Review of Economics & Finance

Publication Date

1-20-2025

Abstract

In this study, we examine whether managers of diversified firms make efficient labor investment decisions. Using a sample of 36,102 firm-year observations over the period 1989–2021, we find that managers of diversified firms make inefficient labor investment decisions. This finding is robust to a battery of sensitivity tests, alternative model specifications, and endogeneity concerns. We further document that the positive relationship between diversification and inefficient labor investment is long lasting, but is attenuated when managers of diversified firms are granted equity incentives. Our results suggest that self-seeking managers may strategically use diversification to obfuscate their suboptimal behaviors. Overall, our findings provide valuable insights into the complexities of resource allocation strategies and contribute to a broader understanding of corporate decision-making.

ISSN

1059-8036

Publisher

Elsevier BV

First Page

103893

Last Page

103893

Disciplines

Business

Keywords

Managerial equity incentives, Labor investment decisions, Diversification, Corporate decision-making, Resource allocation strategies

Indexed in Scopus

no

Open Access

yes

Open Access Type

Hybrid: This publication is openly available in a subscription-based journal/series

Included in

Business Commons

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