Confucianism and Employee Treatment : Evidence from China

This study examines the effect of Confucianism, the most influential traditional culture in China, on employee treatment policies. Using a large sample of data from Chinese listed companies covering 2010 to 2020, we show that employee-friendly practices are positively associated with the popularity of Confucian culture. Our results are robust to controlling confounding factors such as religions and formal institutions, alternative proxies for both Confucianism and employee treatment, instrumental variable regression, and other various approaches to addressing endogeneity and robustness issues. Moreover, valuing and caring for human capital, alleviating managerial myopia, and mitigating agency costs are three plausible economic channels through which Confucianism improves employee treatment. Cross-sectionally, the documented impact is more prominent for firms operating in weaker legal environments, firms facing less analyst coverage, and those whose executives lack overseas experience. Lastly, employee-friendly firms exhibit better firm performance (i.e., employee efficiency, innovation output, and firm value), indicating that what is good for employees is also beneficial for shareholders. Collectively, we shed light on the importance of casting a wider lens on the determinants of employee treatment policies by investigating the unique role of traditional culture