Employee Treatment and Firm Innovation

53 Pages Posted: 22 Aug 2015 Last revised: 16 Dec 2016

Connie X. Mao

Temple University - Fox School of Business and Management; Temple University - Department of Finance

Jamie Weathers

Western Michigan University - Finance & Commercial Law

Date Written: August 3, 2015

Abstract

We identify firm innovation as a new channel by which employee treatment affects firm value. Growth and innovation incentive theories support 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 in the “new economy,” human capital is increasingly essential to firm value and the growth and success of a firm has become more reliant on corporate innovation. Using the KLD Research & Analytics, Inc. SOCRATES database and newly acquired patent/citation data, we find an overall significant positive relationship between positive employee treatment and innovation input (R&D), quantity (Patents), and quality (Citations). Furthermore, we find that favorable employee treatment improves innovation focus – innovation projects more related to firms’ core business. These findings, robust to an alternate data source and endogeneity concerns, are consistent with the theories of growth and innovation incentive and suggest corporate innovation represents a channel by which employee treatment enhances firm value.

Keywords: Employee treatment, human capital, innovation, patents, citations

JEL Classification: G32, M14, J28, O31

Suggested Citation

Mao, Connie X. and Weathers, Jamie, Employee Treatment and Firm Innovation (August 3, 2015). Fox School of Business Research Paper No. 15-071. Available at SSRN: https://ssrn.com/abstract=2648588 or http://dx.doi.org/10.2139/ssrn.2648588

Connie X. Mao (Contact Author)

Temple University - Fox School of Business and Management ( email )

416 Alter Hall
Philadelphia, PA 19122
United States
215-204-4895 (Phone)
215-204-1697 (Fax)

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-4895 (Phone)
215-204-1697 (Fax)

Jamie Weathers

Western Michigan University - Finance & Commercial Law ( email )

Kalamazoo, MI 49008
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
170
rank
159,572
Abstract Views
718
PlumX