EMPLOYEE DIRECTORS AS INTERNAL COMPETITIVE INTELLIGENCE MECHANISMS: EVIDENCE FROM INFORMATION ASYMMETRY AND INVESTMENT EFFICIENCY IN CHINESE LISTED FIRMS

Abstract

Purpose: This paper examines whether employee directors function as internal competitive intelligence actors in Chinese listed firms. It focuses on their role in facilitating the circulation of firm-specific information, supporting board-level decision-making, and improving the informational conditions under which investment decisions are made. The paper further explores whether information asymmetry helps explain this relationship and whether the role of employee directors is more evident in the case of underinvestment.

Methodology/approach: Using a sample of Chinese A-share listed companies, the study employs panel regression models to examine the relationship between employee directors and investment inefficiency. Mediation analysis is used to assess the role of information asymmetry, which serves as an empirical proxy for internal information conditions. Additional tests include alternative measures of investment inefficiency and propensity score matching.

Originality/Relevance: The paper brings employee directors, information asymmetry, and investment efficiency into the same empirical setting, but frames them from a competitive intelligence perspective. Rather than treating employee directors only as a board arrangement, it considers them as internal actors who may improve information flow, support intelligence dissemination, and strengthen decision support within the firm. In this way, the study shifts the focus from governance structure alone to the informational processes that underpin strategic resource allocation.

Key findings: The results show that employee directors significantly reduce investment inefficiency. Information asymmetry mediates this relationship. The effect is asymmetric: employee directors mainly alleviate underinvestment, while their influence on overinvestment is not statistically significant. The effect is also stronger in state-owned enterprises.

Theoretical/methodological contributions: The paper contributes to the literature by showing that employee directors may affect investment efficiency through their influence on internal information conditions rather than through formal board participation alone. The findings suggest that their role is closely related to information quality, internal dissemination, and opportunity recognition. More broadly, the study offers an information-based explanation of how employee directors may strengthen the internal decision conditions associated with strategic resource allocation and, indirectly, with the basis of sustainable competitive advantage.