Employee Quality, Internal Information and Corporate Investment Efficiency: Firm Level Evidence

Abstract

This study investigates the association between the quality of the entire workforces and corporate investment efficiency. We find that the superior internal information generated and collected by high quality employees can enhance managerial investment efficiency. This association is more pronounced in highly complicated firms, firms with more managerial shareholding or firms with higher board independence. The instrumental variable estimations help us establish a causal link between employee quality and investment efficiency. Finally, the validation tests show that firms operated by high-quality employees perform a more effective internal control system, and disclose high quality accounting reports, suggesting that the quality of internal information is indeed higher in these firms.