Employee Quality and Cost of Equity Capital

Fattahi,  Seyed Mohammad Amin; Rezaei Pitenoei ,  Yasser; Moshashaei,  Seyed Mohammad

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year 18, Issue 69 (2026)

fa 2026, 18(69): 1-16

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Employee Quality and Cost of Equity Capital

Seyed Mohammad Amin Fattahi¹

, Yasser Rezaei Pitenoei ^*¹

, Seyed Mohammad Moshashaei¹

1- Department of Accounting, Faculty of Management and Economics, University of Guilan, Rasht, Iran.

Abstract: (249 Views)

Employees play a crucial role in corporate operations and are considered among the most valuable assets of companies. It is anticipated that employees with higher education levels exhibit greater efficiency and better performance within firms, making them a key factor in reducing the cost of equity capital and gaining investor trust. Accordingly, the present study aims to examine the relationship between employee quality and the cost of equity capital in companies listed on the Tehran Stock Exchange during the years 2019 to 2023. To measure employee quality, two criteria were used: the weighted average level of education and the proportion of employees holding a bachelor’s degree or higher. To assess the cost of equity capital, the estimated cost of equity using the rPEG and rMPEG models was employed. The selected sample consists of 112 companies listed on the Tehran Stock Exchange. The hypotheses were tested using a multivariate regression model based on panel data techniques. The results indicate a significant negative relationship between employee education (measured by both the weighted average level of education and the proportion of employees with a bachelor’s degree or higher) and the cost of equity capital. In other words, employee education plays an important role in reducing the cost of equity capital for companies; thus, the research hypothesis is confirmed. According to the findings, companies employing human resources with higher education levels (bachelor’s degree and above) benefit from lower operational risk, higher operational efficiency, greater information transparency, and higher levels of disclosure compared to other firms. Consequently, they are more successful in reducing investor risk and strengthening market trust. Unlike previous studies, which primarily examined the relationship between employees’ educational levels and performance criteria, this study tests the effect of two novel employee quality measures and two cost of equity estimation models within an integrated framework, while controlling for year and industry effects. The findings have critical implications for managers and policymakers, investing in employee education is not a social cost but a strategic financial tool to reduce financing costs. For investors, employee education level should be considered a risk-reducing and transparency-enhancing signal in investment decisions.

Article number: 1

Keywords: Employee Quality, Employees Education Level, Cost of Equity Capital, Human Capital.

Full-Text [PDF 573 kb] (59 Downloads)

Type of Study: Research | Subject: Special

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Fattahi S M A, Rezaei Pitenoei Y, Moshashaei S M. Employee Quality and Cost of Equity Capital. fa 2026; 18 (69) : 1
URL: http://qfaj.mobarakeh.iau.ir/article-1-2916-en.html

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