Too Much of a Good Thing? Administrative Support Staff and Firm Performance

Abstract

Administrative support staff aid firms in managing and motivating employees. However, our understanding of their role is limited. Using unique data from employee profiles, we find that administrative intensity, defined as the proportion of administrative support employees, is negatively associated with future firm performance. This negative association disappears when administrative intensity is low, suggesting a certain level of administrative intensity may be beneficial. Further analysis shows that higher administrative intensity is associated with better employee relationships: lower turnover and higher job satisfaction. However, administrative intensity comes at the cost of lower innovation quality and quantity. Finally, we find that firms with higher administrative intensity experience lower future stock returns, suggesting investors do not fully use this information. Overall, our findings reveal the trade-offs of administrative support: while firms with higher administrative intensity enjoy better relationships with employees, these firms also exhibit worse innovation, resulting in overall poorer financial performance.