Accumulating human capital: Corporate innovation and firm value

We empirically document that industries that are more R&D intensive exhibit disproportionately greater innovation quantity and better innovation quality in economies with more human capital. Firm-level evidence confirms that innovation is an important channel through which firm responds to labor market conditions. Further analyses show that in economies with greater human capital, firms better able to innovate exhibit larger increase in labor productivity and capital–labor ratio, an effect driven by deceases in employment and increase in intangible capital investment. By facilitating the adjustment in input mix and capital structure, human capital accumulation allows firms with high innovation ability to enhance firm equity value and improve firm performance.