Employee treatment and corporate investment efficiency: Evidence from China

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.