The effect of financial reporting quality on labor investment efficiency - Empirical evidence from Japan
Abstract
The objective of this paper is to examine the relationship between financial reporting quality (FRQ) and labor investment efficiency for a sample of 42,045 firm-year observations of non-financial listed firms over the period 1998 to 2017 in Japan. This paper employs different regression models and different proxies for FRQ and finds that the higher quality of financial reporting improves labor investment efficiency of non-financial Japanese listed companies through reducing both over- and under-investment in labor. In addition, this paper finds evidence that the relation between FRQ and labor investment efficiency differs in different firm size and this finding has not been reported in prior studies.. The evidence of the positive relation between FRQ and labor investment efficiency of Japanese firms in this paper is in line with that of the U.S. firms found in Jung, Lee, and Weber (2011) but differs with the finding about the relation between FRQ and capital investment efficiency of Japanese firms in Biddle and Hilary (2006).
Keywords: Labor investment efficiency, over-investment in labor, under-investment in labor, firm size, financial reporting quality