Wisdom of the masses: Employee education and corporate risk taking

The importance of employee quality increases continuously with technology developments; however, prior literature in corporate risk taking mainly focuses on firm managers, and the effect of employee education remains unexplored. Using unique firm-level employee education data from Chinese listed firms between 2011 and 2017, we find that employee education results in a significant average increase of 15.5% in corporate risk taking, consistent with the perspective of mass wisdom. Furthermore, the positive effect of employee education is more evident among firms with state-owned enterprises and more institutional or managerial ownership. Internal control and managerial myopia influence agency problems and bounded rationality; they are two mediating channels for the positive effect of employee education on corporate risk taking. This study's results are robust to alternative measures of employee education and corporate risk taking and a set of endogeneity tests. Overall, our findings show the practical value of employee education in improving corporate risk taking.