Does Corporate Governance Affect Labor Investment Efficiency?

This study examined the effect of corporate governance on labor investment efficiency, using 5178 firm-year samples from companies listed on the Korean stock market over the period from 2011 to 2019. In addition, the relationship between corporate governance and labor investment efficiency according to whether the company belongs to a chaebol group was examined. Corporate governance was measured using KCGS’s corporate governance ratings. This study tried to verify whether labor investment inefficiency due to information asymmetry is improved by excellent corporate governance. The results show that in the case of the entire sample, the relationship between corporate governance and labor investment efficiency was significant in the positive (+) direction. That is, it is an empirical result indicating that a company with a sound governance structure is making effective labor investment. The samples were divided into overinvestment samples and underinvestment samples, and the relationship between corporate governance and labor investment efficiency was analyzed separately in the two samples. According to the results, the positive relationship between corporate governance and labor investment efficiency was significant only in the case of underinvestment samples. In addition, the positive relationship between corporate governance and labor investment efficiency was more statistically significant in the case of companies belonging to a chaebol group. This study provided implications for authorities, shareholders, and investors, etc., in that it suggests the role of corporate governance as a mechanism to alleviate the agency problem between managers and investors.