Employee treatment and corporate investment efficiency: Evidence from China

• Published in: Economic modelling 2023-11, Vol.128, p.106484, Article 106484
• Main Authors: Wang, Maochuan, Yan, Youliang
• Format: Article
• Language: English
• Subjects: Corporate investment efficiency; Employee treatment; Financing constraints; Human capital; Internal control
• ISSN: 0264-9993
• DOI: 10.1016/j.econmod.2023.106484

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. •We investigate the effect of employee treatment on investment efficiency.•We utilize data from Chinese listed firms during 2010–2020.•Employee-friendly treatment improves investment efficiency.•Internal control and financing constraints are two economic channels.•Employee quality, R&D intensity, and industry competition moderate the impact.