Employee treatment and firm innovation

Journal of Business Finance and Accounting - Tập 46 Số 7-8 - Trang 977-1002 - 2019
Connie X. Mao1, Jamie Weathers2
1Fox School of Business, Temple University, Philadelphia, USA
2Department of Finance and Commercial Law, Haworth College of Business Western Michigan University USA

Tóm tắt

AbstractWe 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.

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Thông tin xuất bản

Journal of Business Finance and Accounting

Tập 46 Số 7-8

977-1002

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