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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Bibliographic Details
Published inJournal of financial economics Vol. 100; no. 1; pp. 130 - 153
Main Authors Bae, Kee-Hong, Kang, Jun-Koo, Wang, Jin
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.04.2011
Elsevier
Elsevier Sequoia S.A
SeriesJournal of Financial Economics
Subjects
Capital structure
Capital structure Employee treatment Stakeholder KLD rating Endogeneity
Debt
Employee treatment
Employees
Endogeneity
Enterprises
Financial incentives
KLD rating
Labor relations
Leverage
Stakeholder
Stakeholders
Studies
Working conditions
Stakeholder
G33
G32
M51
KLD rating
Endogeneity
Capital structure
Employee treatment
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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.
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