This study examines how U.S.-listed firms' asset redeployability affects their labor investment efficiency and documents a negative relationship between asset redeployability and labor investment efficiency. Asset redeployability increases overinvestment in labor in the forms of over-hiring and under-firing and provides managers more opportunities to conduct earnings management, which reduces financial reporting quality, readability, and comparability, thereby harming labor investment efficiency. Furthermore, our additional results indicate that the negative impact of asset redeployability on labor investment efficiency is mitigated for firms that have a higher degree of unionization, employ more skilled labor, or implement better corporate governance practices.

This research examines the effect of product market threats on firms’ leverage adjustments. We find that competitive pressures from the product market accelerate the leverage speed of adjustment (SOA) toward the target capital structure. To establish the causal effect of competitive threats on SOA, we exploit a quasi-natural experiment provided by large import tariff reductions in the U.S. manufacturing sector and show a significant increase in firms’ leverage adjustments after large tariff cuts. The impact of product market threats on leverage adjustments is more pronounced for firms with poor governance quality and exposed to product market threats. Finally, to the extent that reaching the target capital structure enhances firm value, we note that the faster SOA following competition translates into higher firm value. Overall, our study highlights the “bright side” of product market competition and suggests that agency conflicts between managers and shareholders are attenuated by intensified competition.