Pay Restrictions and Labor Investment
June Cao, Iftekhar Hasan, Zijie Huang, Jingyuan Zhao
Journal of Corporate Finance,
Vol. 99 (June),
2026
Abstract
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.
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How Do Banks Respond to Supplier IPOs?
Sung C. Bae, Iftekhar Hasan, Liuling Liu, Haizhi Wang
Financial Markets, Institutions and Instruments,
Vol. 34 (3),
2025
Abstract
This paper examines how supplier IPO events affect their key customers’ cost of debt. The evidence reveals that average loan spreads for customers increase by roughly 20% (23.7 basis points) following suppliers’ IPO events. This negative spillover effect is more pronounced when suppliers make significant relationship-specific investments (high switching cost), when suppliers face less concentrated customer bases, or when customers face more concentrated supplier bases. Our results show that customers receive less favourable trade terms and are forced to pay more for inputs after their suppliers go public, all of which increase customers’ operational costs, risk and subsequent borrowing costs. Furthermore, we document that customer loan contracts become significantly more restrictive after a supplier's IPO. Finally, we find that the observed negative spillover effect is also present in customers’ access to the public bond market.
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Economic Outlook
Joint Economic Forecast Spring 2026 Energy Price Shock Dampens Recovery – Inflation Rises April 1, 2026 Although the leading economic research institutes consider the German…
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Halle Institute for Economic Research
Energy Price Shock Dampens Recovery – Inflation Rises Although the leading economic research institutes, in their joint spring forecast, consider the German economy to be in a…
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Research Articles
Research Articles Explore cutting-edge research based on CompNet’s micro-aggregated firm-level data and related analytical tools. These articles cover empirical and theoretical…
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IWH EXplore
IWH EXplore Competitive Funding for Research Projects with External Involvement at IWH IWH EXplore gives scientists the opportunity to acquire supplemental funding, in addition to…
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East Germany
The Nasty Gap 30 years after unification: Why East Germany is still 20% poorer than the West Dossier In a nutshell The East German economic convergence process is hardly…
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Aktuelle Trends: Starker Anstieg der Gesetzesfolgekosten der Wirtschaft
Steffen Müller
Wirtschaft im Wandel,
No. 3,
2024
Abstract
Steigende Bürokratiekosten werden derzeit oft als ein Grund für die aktuelle wirtschaftliche Schwäche genannt. Allerdings ist der Streit um (zu hohe) Bürokratiekosten nichts Neues. Als Konsequenz daraus wurde der unabhängige Normenkontrollrat bereits 2006 ins Leben gerufen.
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Past Events
Past Events 14. CompNet Annual Conference (Vilnius, 25-26 September 2025) The 14th CompNet Annual Conference, co-hosted with the Bank of Lithuania, took place on 25–26 September…
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6th CompNet Annual Conference
Innovation, firm size, productivity and imbalances in the age of de-globalization 6 th CompNet Annual Conference, June 29-30, 2017, European Commission, Brussels, Belgium As the…
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