Employee treatment and corporate investment efficiency: Evidence from China

Maochuan Wang and Youliang Yan

Economic Modelling, 2023, vol. 128, issue C

Abstract: This study examines whether and how employee treatment affects corporate investment efficiency. Using a sample of Chinese listed firms from 2010 to 2020, we provide evidence that employee-friendly treatment leads to increased investment efficiency. To bolster a causal interpretation of this finding, we further leverage instrumental variable approaches, difference-in-differences strategies, and multiple fixed effects. Moreover, improving internal control and mitigating financing constraints are two plausible channels through which employee treatment facilitates investment efficiency. Cross-sectionally, the documented effect is more pronounced for firms with high employee quality, R&D-intensive firms, and those operating in competitive industries. Collectively, our study sheds light on an unintended consequence of employee treatment policies on corporate investment decision-making, providing important implications for business practices.

Keywords: Employee treatment; Corporate investment efficiency; Human capital; Internal control; Financing constraints (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:128:y:2023:i:c:s0264999323002961

DOI: 10.1016/j.econmod.2023.106484

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