We examine whether a firm’s organization capital (OC) affects its labor investment efficiency. We find that a higher level of OC is related to lower deviations from the optimal level of labor investment according to economic conditions (higher labor investment efficiency). We find that this result is empirically robust to a stacked difference-in-differences approach using exogenous CEO turnover as a quasi-natural experiment and planned CEO retirements and forced CEO turnovers as placebo tests. We identify that the ability to retain talented employees and reduction of agency costs are the two channels by which OC improves a firm’s labor investment efficiency. Furthermore, we report that the positive effect of OC on labor investment efficiency is more pronounced in firms in highly competitive markets, firms with better access to external financing and firms with highly skilled labor.

We examine the effect of mandatory financial disclosures, specifically SFAS 131, on corporate restructuring activities by using difference-in-differences (DiD) and regression discontinuity design (RDD) settings. After the adoption of SFAS 131, firms are less likely to engage in acquisitions than are the control firms. Furthermore, conditional on firms' engagement in acquisition activities, acquirers are less likely to complete their initiated acquisition deals, especially for those value-destroying deals. After the implementation of SFAS 131, we find that the equity market reacts positively to large and diversifying deals that are subject to mandatory segment disclosures. Overall, our results suggest that the segment disclosure standard helped prevent managers from undertaking new, value-destroying M&As post-SFAS 131. Finally, these SFAS 131–induced corporate restructuring activities are shown to help reduce the risk of a stock price crash.