We investigate the link between employee treatment, labor investment efficiency and firm performance. Using a sample of 20,583 US firm-year observations, based on 2,680 firms from 1995 to 2015, we show that firms with better employee treatment have higher labor investment efficiency, productivity and profitability. Our results are primarily driven by employee treatment concerns, rather than strengths, and we also show that labor investment efficiency is positively associated with firm productivity and profitability. We find that other elements of corporate social responsibility, beyond employee treatment, are not associated with labor investment efficiency and are not reliably associated with performance. This placebo test supports our findings and is inconsistent with CSR in general being impacted by reverse causality or omitted correlated variables. Our results are economically as well as statistically significant. We estimate that firms with non-typical employee treatment experience a 10 percent impact on net employment change and half a percent impact on return on assets.
|Number of pages||53|
|Publication status||Published - 26 Feb 2018|
- Employee Treatment
- Firm Performance
- Labor Investment Efficiency