The Mediating Effect of Labor Investment Efficiency on the Relationship between ESOP and Cost of Equity

We investigate the mediating effect of labor investment efficiency on ESOP and Cost of equity. Our findings showed the significant impact of ESOP and labor investment efficiency on the cost of equity individually. We also found labor investment partially mediated the relationship between ESOP and cost of equity. In contrast with theoretical predictions, ESOP tends to lead to inefficient labor investment. Hence, inefficiency would decrease the firm cost of equity. We used non-financial firms that were listed on Indonesian Stock Exchange (IDX) from 2017 to 2021. Path analysis was employed to analyze the hypotheses. These findings provide new insights into the relationship of ESOP with the cost of equity. Companies should pay attention to labor investment efficiency to achieve the optimum impact of ESOP and bring betterment for the company and shareholders. The policymaker also needs to regulate the implementation of ESOP and its guidance to ensure the firm would benefit all parties without any rights violation.