Higher education and corporate innovation

• Published in: Journal of corporate finance (Amsterdam, Netherlands) Vol. 72; p. 102165
• Main Authors: Kong, Dongmin, Zhang, Bohui, Zhang, Jian
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.02.2022
• Subjects: China; Corporate innovation; High-skilled labor; Higher education expansion; Human capital; Corporate innovation; High-skilled labor; Human capital; Higher education expansion; China
• ISSN: 0929-1199; 1872-6313
• DOI: 10.1016/j.jcorpfin.2022.102165

This paper investigates the impact of higher education on corporate innovation. To establish causality, we exploit a policy-induced exogenous shock in the supply of Chinese college-educated labor starting in 2003. Using a difference-in-differences approach, we find that Chinese firms in skilled industries generate better innovation outcomes as measured by patents and citations than those in unskilled industries. This effect is more pronounced among firms headquartered in a province with more science and engineering college graduates, young firms that are more likely to hire young graduates, and firms located near universities. Moreover, higher education expansion increases a firm's innovative human capital in terms of the number of educated employees and inventors. Finally, we show that technological innovation is a mechanism through which higher education affects productivity growth and, thus, the economy. •This paper investigates the impact of higher education on corporate innovation.•TWe find that Chinese firms in skilled industries generate better innovation outcomes as measured by patents and citations.•This effect is more pronounced among firms headquartered in a province with more science and engineering college graduates.•Higher education expansion increases a firm's innovative human capital in the number of educated employees and inventors.•Technological innovation is a mechanism through which higher education affects productivity growth and the economy.