Employee education level and the cost of equity capital

Abstract

This study examines the capital market benefits of employee education level and finds a significant and negative relation between a firm's employee education level and cost of equity capital. Our empirical results remain unchanged after applying different measures of variables and addressing endogeneity concerns. Cross-sectional tests show that our main results are more pronounced in firms which treat employees better and in knowledge-intensive firms. Overall, this study presents novel evidence on how human capital creates value for firms and enriches the literature on the cost of equity capital.