Employee Treatment and Contracting with Bank Lenders: An Instrumental Approach for Stakeholder Management

Bill Francis (), Iftekhar Hasan, Liuling Liu () and Haizhi Wang ()
Additional contact information
Bill Francis: Rensselaer Polytechnic Institute
Liuling Liu: Bowling Green State University
Haizhi Wang: Illinois Institute of Technology

Journal of Business Ethics, 2019, vol. 158, issue 4, No 10, 1029-1046

Abstract: Abstract Adopting an instrumental approach for stakeholder management, we focus on two primary stakeholder groups (employees and creditors) to investigate the relationship between employee treatment and loan contracts with banks. We find strong evidence that fair employee treatment reduces loan price and limits the use of financial covenants. In addition, we document that relationship bank lenders price both the levels and changes in the quality of employee treatment, whereas first-time bank lenders only care about the levels of fair employee treatment. Taking a contingency perspective, we find that industry competition and firm asset intangibility moderate the relationship between good human resource management and bank loan costs. The cost reduction effect of fair employee treatment is stronger for firms operating in a more competitive industry and having higher levels of intangible assets.

Keywords: Employee treatment; Stakeholder management; Instrumental approach; Cost of bank loans; Loan covenants (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (12)

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DOI: 10.1007/s10551-017-3722-0

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