Brain Gain: The Effect of Employee Quality on Corporate Social Responsibility

Abstract

This paper investigates whether and how employee quality affects corporate social responsibility (CSR). We find that firms with a high‐quality workforce are associated with more CSR engagement. We use an exogenous shock of household registration reform in China to employee mobility to support a causal inference. The main effect is more pronounced among firms whose human capital has more value‐added (e.g., firms in high‐tech industries, firms with more R&D investment, and patent filings). Further, we show that employees' bargaining power and monitoring role are potential channels through which employee quality affects CSR. Finally, our results also demonstrate that the employee quality effect is economically sizeable and generates positive externalities on future financial performance and firm value.