That is what friends do: employee friendliness and innovation

Recent literature suggests that labor related issues can impact corporate innovation. In this study we hypothesize and find that firms with congenial work environments innovate more and have greater innovative efficiency. Our results also suggest that cash profit sharing and employee involvement have a positive bearing whereas union relationships have a negative impact on innovation output of a firm. In addition, subsample analysis reveals that employee-friendly policies are more important in industries having higher employee power. Our results are consistent with the logic that happy and satisfied employees tend to be more productive than the unhappy and dissatisfied ones. Our work suggests a channel through which satisfied employees contribute towards increasing firm value − by increasing the innovation productivity and efficiency of the firm. So, firms must make continued efforts towards creating and maintaining a friendly work environment.