The US Individualism–Collectivism and Labor Investment Efficiency

Research Question/Issue: We examine whether the variation in the ndividualism–collectivism dimension within the US affects labor investment efficiency. Research Findings/Insights: Using the collectivism index developed by existing literature, we find that firms headquartered in collectivist states are more likely to deviate from the optimal level of hiring. The effect is stronger in firms with high agency problems and information asymmetry. Additional analyses suggest that collectivism induces more inefficiency in firms with larger boards, less independent boards, firms with high R&D intensity, and states that adopt antitakeover laws. Theoretical/Academic Implications: Overall, we find convincing evidence that cultural differences across US states contribute to labor investment decisions. Practitioner/Policy Implications: The study extends the existing literature on the effect of cultural dimensions on labor investment decisions, particularly in the context of the United States. It also extends our understanding of how cultural variations across headquarters states can adversely affect firm hiring and firing decisions. Jel Classification: M14, G30, G34, G40.