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http://dx.doi.org/10.5392/JKCA.2020.20.12.136

Labor Investment Efficiency and Value Relevance of Accounting Information  

Cho, Jungeun (부경대학교 경영대학)
Publication Information
The Journal of the Korea Contents Association / v.20, no.12, 2020 , pp. 136-144 More about this Journal
Abstract
Previous studies report that labor investment inefficiency occurs as the information asymmetry becomes severe and the agency problem between managers and external investors increases. Therefore, it is highly likely that managers will make opportunistic decisions that can damage corporate value in companies with high labor investment inefficiency. This study examines whether the value relevance of accounting information decreases as labor investment inefficiency increases as it is less likely that investors in the market use the accounting information of companies in which labor investment decisions are made inefficiently. Labor investment efficiency is measured as the difference between the actual level of labor investment and the expected level of optimal labor investment. Larger difference between the actual level of labor investment and the expected level of optimal labor investment is considered as higher inefficiency in labor investment. Using data of firms listed on the Korea Stock Exchange from 2002 to 2018, empirical results show that the value relevance of earnings decreases as the inefficiency of labor investment increases. This research provides empirical evidence on whether investment inefficiency in labor, which is an important factor in the competitiveness of a company, reduces the information usefulness of reported earnings.
Keywords
Labor Investment Efficiency; Value Relevance; Overinvestment; Underinvestment;
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