Exploiting the executive compensation reform for state-owned enterprises (SOEs) in China that enforce strict pay restrictions, this study examines whether and how pay restrictions affect firms’ labor investment inefficiency. We find that SOEs experience a decrease in abnormal labor investment following the reform relative to non-SOEs, particularly in over-investment in labor. Our results show that the reform is associated with lower labor investment inefficiency through strengthened internal governance and mitigated internal social comparison. In addition, pay restrictions specifically curb firms’ tendency to over-hire. Further analysis reveals that imposing pay restrictions on executives enhances labor quality and also promotes employee well-being. This study offers novel policy insights by showing how pay restrictions to SOE executives can reduce vertical agency costs and investment inefficiency and enhance workforce quality and well-being in weak institutional environments.

Based on a sufficient statistics approach, we show how the state of technology of European industries relative to the rest of the world can be empirically assessed in a way that is simple in terms of computation, parsimonious in terms of data requirements, but still comprehensive in terms of information. The lack of systematic cross-industry correlation between export specialization and technological advantage suggests that standard measures of revealed comparative advantage only imperfectly capture a country’s technological prowess due to the concurrent influences of factor prices, market size, markups, firm selection and market share reallocation. These findings offer policy insights relevant to the EU’s external competitiveness debate, echoing several recommendations from the Draghi report. Achieving export specialization in key sectors requires more than just technological superiority.

We exploit an information shock related to the German Supply Chain Due Diligence Act and use detailed customs data to analyze how smaller, non-listed firms respond when expecting accountability for externalities beyond their organizational boundaries. Product-level regressions reveal a substantial reduction in imports from high ESG-risk production sectors. Adjustments occur mainly at the extensive margin, indicating that firms cut ties with high-risk suppliers. The product-level results translate into meaningful changes in overall international procurement for firms with Big Four auditors. Our findings suggest potential limits to mandates requiring firms to integrate broad sustainability considerations into operational decisions.