How Do Higher Educated Employees Affect Firms’ Investment Efficiency in China?

ABSTRACT

China’s higher education expansion increases firms’ human capital input in terms of the number of educated employees, while its quality undergoes questioning. It is unknown what employees with higher education bring to the firm in China. Considering that investment decision is one of the most important drivers of firm value, we examine how employees with higher education affect firms’ investment efficiency in this paper. We document that the number of employees with higher education increases by 89% from 2008 to 2021. We further find that more employees with higher education are associated with higher investment efficiency through mitigating over- and underinvestment. This association is stronger for firms with high product market competition, low customer concentration, state-owned enterprises, and high senior manager education. Collectively, the results suggest that the information inputs channel, monitoring channel and up-and-down communications channel are likely underlying mechanisms through which higher educated employees affect firms’ investment decisions. Overall, our paper sheds light on the real effect of higher educated employees on firms’ investment efficiency.

KEYWORDS:

• Higher educated employee
• investment efficiency
• information inputs
• monitoring mechanism
• up-and-down communications

JEL:

• G31
• J53

Acknowledgments

We appreciate the financial support by the National Natural Science Foundation of China (Grant No. 72202130).

Disclosure Statement

There are no conflicts of interest to declare.

Notes

1. For example, as one of China’s highest-profile corruption cases, Lai Xiaomin – who used to be the chair of China Huarong Asset Management – was sentenced to death on for bribery, corruption and bigamy. Gao Jinlei – employee of Huarong Asset Management – is a very important whistleblower in this case. Mr. Gao provided a lot of evidence about the case. More importantly, Mr. Gao obtained his master degree from a top University in China.

Additional information

Funding

The work was supported by the National Natural Science Foundation of China Grant No. [72202130]