Institutional shareholder coordination and labour investment efficiency: evidence from the geographic concentration of institutional shareholders

Abstract

In an era of dispersed ownership, shareholder coordination has become increasingly important. Using a sample of A-share listed firms on the Shanghai and Shenzhen stock exchanges from 2007 to 2022, we empirically investigate the impact of shareholder coordination on labour investment efficiency from the perspective of the geographic concentration of institutional shareholders. We find that the geographic concentration of institutional shareholders enhances corporate labour investment efficiency by mitigating agency problems and improving accounting information quality. Cross-sectional analyses reveal that this effect is significantly attenuated in firms with strong external monitoring, limited institutional shareholder governance capabilities, and higher labour adjustment costs. Specifically, the geographic concentration of institutional shareholders significantly reduces both labour over-investment and under-investment, particularly by alleviating over-hiring and over-firing. Moreover, these improvements in labour investment efficiency enhance future firm performance. Our findings provide important insights into the significance of shareholder coordination and the role of institutional shareholders in improving resource allocation efficiency.