Do Countries Matter More in Determining the Relationship Between Employee Welfare and Financial Performance?

Kartick Gupta and Chandrasekhar Krishnamurti

International Review of Finance, 2020, vol. 20, issue 2, 415-450

Abstract: Extant literature suggests that employee‐friendly practices influence corporate decision‐making. Using a bargaining framework, we examine the role of country‐level determinants in influencing employee‐friendly practices and their impact on value creation. Utilizing a comprehensive sample of 25,483 firm‐year observations from 56 countries, we find that firms domiciled in countries with weak employment protection and regulations can potentially benefit by voluntarily undertaking employee‐friendly practices. Also, in countries with flexible labor market conditions, firm value is enhanced by undertaking employee‐friendly practices. Furthermore, the importance of employee‐friendly practices in value creation is observed strongly in countries that provide better infrastructure, productivity, and incentives.

Date: 2020
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