A large literature in finance provides evidence that agency conflicts and
information asymmetry between managers and outsiders lead firms to undertake
suboptimal levels of investment (Hubbard 1998 and Stein 2003 provide surveys of this
literature). Recent accounting research builds on this notion in arguing that high-quality
financial reporting can serve to mitigate such market imperfections and improve
investment efficiency (e.g., Bushman and Smith 2001; Healy and Palepu 2001;
Lambert, Leuz, and Verrecchia 2007). High-quality financial reporting can potentially
mitigate such moral hazard problems by enabling more efficient contracting and
enhancing the monitoring abilities of investors and other outsiders. The sample used in
this study is public company listed on the Indonesia Stock Exchange between 2010 until
2015.
The results of the regression test shows that there are influences between the
financial reporting quality and labor intensity toward the abnormal net hire as the
dependent variable. The result of significant value financial reporting quality is 0.012
(< 0.05), and the result of significant value labor intensity is 0.042 (<0.05). financial
reporting quality is absolute value of et (Dechow et al., 2010). The smaller value of
absolute et, the higher financial reporting quality (Dechow et al., 2010). Based on the
result that abnormal net hire has been influenced by of those variables (P < .005);
because labor investment efficiency is absolute value of abnormal net hiring (Jung et al.,
2014). The smaller absolute value of abnormal net hiring, are the more efficient labor
investment (Jung et al., 2014).