Employee treatment and firm innovation

Connie X. Mao and Jamie Weathers

Journal of Business Finance & Accounting, 2019, vol. 46, issue 7-8, 977-1002

Abstract: We identify firm innovation as a channel through which the treatment of employees affects firm value. Long‐term incentive theory supports positive effects of ‘good’ employee treatment on innovation. Alternatively, entrenchment theory suggests such treatment will lead to complacency and shirking, hence deterring innovation. These opposing views merit investigation since human capital is increasingly essential to the growth and success of a firm. Using the KLD database and patent/citation data, we find a significant positive relationship between favorable employee treatment and the innovation quantity and quality of a firm. Furthermore, we find that the positive treatment of employees improves innovation focus – more innovation related to firms’ core business, leading to greater firm value via the increased economic value of patents. These findings, robust to endogeneity concerns, provide support for the long‐term incentive hypothesis, suggesting that well‐treated employees increase firm innovation. Thus, firm innovation represents a channel through which positive employee treatment enhances firm value.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (41)

Downloads: (external link)
https://doi.org/10.1111/jbfa.12393

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jbfnac:v:46:y:2019:i:7-8:p:977-1002

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0306-686X

Access Statistics for this article

Journal of Business Finance & Accounting is currently edited by P. F. Pope, A. W. Stark and M. Walker

More articles in Journal of Business Finance & Accounting from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().