Highly Educated Employees and Firm Productivity: Agency Cost and Innovation Efficiency Channels in Chinese Listed Firms

This study examines the association between education-based human capital and firm productivity and investigates the organizational channels through which that association operates. Using an unbalanced panel of Chinese listed firms from 2007 to 2023, we measure human capital as the share of employees holding a master's degree or above and estimate total factor productivity with the Olley-Pakes method. Regressions with industry and year fixed effects show that a larger share of postgraduate-educated employees is positively associated with firm productivity. Mediation tests indicate that internal governance and operating measures, together with patent-based innovation efficiency, partly transmit this association. The invention-patent channel is stronger than the utility-model and design-patent channel, whereas the proxy for conflicts between controlling and minority shareholders has a negative indirect effect. Industry-level analyses suggest that the governance and operating channel is more pronounced in secondary industries, while the innovation channel is stronger in tertiary industries. The results show that the productivity value of highly educated employees depends on a firm's ability to incorporate their knowledge and skills into governance arrangements and substantive innovation. Because the research design primarily identifies conditional associations, the analysis does not make causal claims beyond the evidence.