We examine the inter-relationships among employee-friendly policies (EFP), innovation through R&D investment, and firm value. We hypothesize that firms with higher levels of innovation and entrepreneurial spirit are more likely to utilize EFP. Furthermore, we speculate that the value-EFP association is more pronounced in firms with high R&D intensity. Consistent with these assertions, we find that EFP is significantly and positively related to R&D investment and the number of patents. EFP is also associated with increased firm value at high levels of R&D investment and high numbers of patents. Furthermore, we find that firms investing more in R&D are more likely to treat their workers favorably and that markets react positively when such firms are recognized for their favorable treatment of employees. Our analysis, based on a large sample of U.S.-based firms and two different measures of employee-friendly policies, supports the assertion that EFP based on sustainable innovation and entrepreneurial mindsets contributes to value creation.
G30, G39, 032
Employee-friendly practices; Human capital; R&D investment; Sustainable innovation; Entrepreneurial spirit; Value creation theory
Chang, Saeyoung; Jo, Hoje; and Pozner, Jo-Ellen
"Employee-Friendly Practices and Innovation,"
The Journal of Entrepreneurial Finance:
2, pp. 144-186.
Available at: https://digitalcommons.pepperdine.edu/jef/vol24/iss2/7
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