Investigating the Effect of Accounting Comparability on Labor Investment Efficiency: Moderating Role of Financing Constraint, Internal and External Monitoring

From the economic point of view, investment in employment for advanced companies which possess a high level of human capital is significant. To be specific, deviation from the optimal level of investment in employment can deteriorate competitional advantage, efficiency, and future performance of companies. In other words, one of the most important decisions of companies that have important economic consequences in the long run, both for the country and company, is decisions related to the efficiency of investment in labor employment. These decisions primarily rely on the confidential information of management about the skills and efficiency of the employee. Accounting information with high quality can increase the ability of oversight for investors and shareholders. In general, comparability can reduce the expense of paraphrasing accounting information. Accordingly, in this study, the role of one of the key features of accounting information quality (accounting comparability) on the labor investment efficiency in companies was investigated. In the meantime, the moderating role of features including financing constraint, internal and external monitoring is studied.

The research methodology is quantitative research that adopts the scientific method and empirical evidence, based on hypotheses and ex-post research design. This type of research is utilized when criteria data quantitative are used. In this research, data from 91 firms listed on Tehran Stock Exchange from 2010 to 2020 was gathered through the financial statements and Rahavard Novin software. Also, according to the research purpose, financial constraints, external and internal oversight are regarded as moderating variables. Statistical analysis was carry out by multi-variable regression in panel data structure with Eviwes software.Based on the theoretical literature and the conducted studies, research hypotheses were developed as follows:First hypothesis: Accounting comparability has positive and significant effects on the labor investment efficiency.Second hypothesis: Financing constraint reinforce the intensity of the positive effect of accounting comparability on labor investment efficiency.Third hypothesis: In weaker external monitoring, the effect of accounting comparability on the labor investment efficiency is stronger.Fourth hypothesis: In weaker internal monitoring, the effect of accounting comparability on the labor investment efficiency is stronger.Our proxies for labor investment efficiency are constructed based on the method of Pinnuck and Lillis (2007) model. The model takes the following form:Net-Hiringi,t = α + β1Sales_Growthi,t + β2Sales_Growthi,t-1 + β3ROAi,t + β4∆ROAi,t + β5∆ROAi,t-1 + β6Returni,t + β7Sizei,t-1 + β8Quicki,t-1 + β9∆Quicki,t + β10∆Quicki,t-1 + β11Levi,t-1 + i,t-1k + Industry Dummies + εi,t (1)Where Net_Hiring -denoting a firm's net hiring- measures labor investments and is calculated as the percentage change in the number of employees. To estimate expected labor investment, the model includes a series of firm-specific characteristics, including sales growth (Sales_Growth); return on assets (ROA); annual stock return (Return); firm size (Size); quick ratio (Quick); leverage ratio (Lev); loss interval indicators (Loss_Bin); and industry dummies.

The results of the regression analysis of the study showed that accounting comparability has positive effects on the labor investment efficiency. Also, companies with more tangible assets, dividends, institutional investors, and labor intensity tend to have a higher level of efficiency of labor investments. On the contrary, companies with higher quick ratios, cash flow volatility, net hiring volatility, and loss invest in labor employment with lower efficiency. Furthermore, accounting quality shows that companies that have a higher quality of income can reduce inefficiency in labor employment investment. Evidence also shows that when firms have financing constraints, and weak internal and external monitoring a stronger positive relationship between accounting comparability and labor investment efficiency exists.

The evidence obtained from the research results showed that accounting comparability has a positive effect on the labor investment efficiency. It means that comparable accounting information can reduce false decisions to hiring and firing. Thus, shift the labor investment efficiency toward desirable level. Deviation from the optimal level of investment in labor can deteriorate the future performance of a company and it is in contrast with the interest of shareholders. In this regard, standard setters can improve the labor investment efficiency by adopting ways to improve the comparability of companies' information. Also, in situations where internal and external monitoring are not in a good position, the labor investment efficiency can be improved by providing comparable accounting information. Further analysis showed that accounting comparability have positive effect on the labor investment efficiency in companies with financing constraint while this subject is not significant for firms without financing constraint. This subject shows that in situations with financing constraint, accounting information can play an important role and also help the managers of companies.