From employees to executives: internal communication channels and corporate innovation

Employees often possess operational knowledge that is valuable to the firm only if it reaches the executives who allocate resources and set strategic priorities. We examine whether Chinese listed firms that adopt formal channels through which employees can communicate suggestions, ideas, or concerns to senior executives differ in innovation output. Using data on employee-executive communication channels (ECC) for Chinese A-share listed firms over 2007–2024, we document a positive association between ECC adoption and patent output. The association is stronger in firms with more highly educated workforces and higher employee and executive pay. Firms with ECC also produce a higher share of patents developed by multiple inventors, consistent with greater collaborative inventive activity. In an additional analysis, share prices respond positively around the annual report in which an ECC is first disclosed. Taken together, the evidence is consistent with formal upward communication channels serving as an internal governance and coordination mechanism for innovation.