Strategic alliance, agency problems, and labor investment efficiency

Inter-firm strategic alliances, which are formed to facilitate resource allocation and improve efficiency, may also inadvertently lead to labor investment inefficiencies due to increased agency conflicts and managerial opportunism. Using a sample of Chinese firms, we find that strategic alliances significantly reduce labor investment efficiency by 4.5%. The reduction in labor investment efficiency takes the form of reduced revenue-generating capacity per unit of labor, overhiring of labor, and increased labor cost stickiness. Consistent with the agency view, we find that the negative effects of strategic alliances are more pronounced under weak corporate governance and high information asymmetry among alliance partners. Overall, the results highlight the complex dynamics of inter-firm strategic alliances and provide practical insights for improving labor investment efficiency in the context of inter-firm cooperation.