The 270th Wenlan Financial Forum

Abstract：

In this paper, we propose that a liquid labor market can discipline firm managers and make executive compensation schemes more efficient by pushing firms to compete in the labor market. We use the state-level staggered changes of noncompete agreement enforceability as the variation in labor market mobility and conduct DID estimation. Applying the textual analysis approach to capture managers’ attention to employees, we show that restricting labor market mobility makes firm managers care less about employees, leading to lower executive pay-for-performance sensitivity, pay-for-skill, and pay penalty. We also find institutional investors sell firm stocks if the firm fails to retain employees. These results suggest that the threat of losing employees in a liquid labor market imposes pressure on firm managers and pushes managers to accept more efficient compensation schemes. Further tests show that the impact of labor market mobility is more prevalent in firms relying more on skilled employees and firms in more competitive industries. The above evidence suggests that labor market mobility can serve as an external governance mechanism.

Speaker Introduction：

Yao Lu, Professor and Deputy Dean of Finance Department, School of Economics and Management, Tsinghua University. D. in Business Economics from the Ross School of Business, University of Michigan -- Ann Arbor. Her research interests include corporate governance, corporate mergers and acquisitions, labor and finance, the impact of technological change on corporate investment, financing and development, and capital market reform and development. She has published (or received) 46 papers in top authoritative academic journals at home and abroad. These include the Journal of Finance, Management Science, Journal of Financial Economics, Journal of Financial and Quantitative Analysis, Review of Economics and Statistics, Review of Finance, "Journal of Corporate Finance", "Economic Research", "Management World", "Journal of Management Science", "Financial Research", "Economics (Quarterly)" and other top academic journals at home and abroad. In addition, several of her articles have been included in the Harvard Corporate Governance Forum. She presided over 13 longitudinal research topics. Independent publication of the monograph "Corporate Mergers and Acquisitions and restructuring". Main academic and part-time jobs include: director of China Finance Society; Deputy Editor of the Journal of Comparative Economics (SSCI); Associate Editor, Pacific Basin FinanceJournal (SSCI); Editorial Board of Corporate Governance: An International Review (SSCI); Associate editor, Finance, Journal of Economic Management.