Employee treatment and firm leverage: A test of the stakeholder theory of capital structure
We investigate the stakeholder theory of capital structure from the perspective of a firm’s relations with its employees. We find that firms that treat their employees fairly (as measured by high employee‐friendly ratings) maintain low debt ratios. This result is robust to a variety of model specifi...
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Published in | Journal of financial economics Vol. 100; no. 1; pp. 130 - 153 |
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Main Authors | , , |
Format | Journal Article |
Language | English |
Published |
Amsterdam
Elsevier B.V
01.04.2011
Elsevier Elsevier Sequoia S.A |
Series | Journal of Financial Economics |
Subjects | |
Online Access | Get full text |
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Summary: | We investigate the stakeholder theory of capital structure from the perspective of a firm’s relations with its employees. We find that firms that treat their employees fairly (as measured by high employee‐friendly ratings) maintain low debt ratios. This result is robust to a variety of model specifications and endogeneity issues. The negative relation between leverage and a firm’s ability to treat employees fairly is also evident when we measure its ability by whether it is included in the
Fortune magazine list, “100 Best Companies to Work For.” These results suggest that a firm’s incentive or ability to offer fair employee treatment is an important determinant of its financing policy. |
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Bibliography: | ObjectType-Article-2 SourceType-Scholarly Journals-1 ObjectType-Feature-1 content type line 23 |
ISSN: | 0304-405X 1879-2774 |
DOI: | 10.1016/j.jfineco.2010.10.019 |