Employee Treatment and Bank Default Risk during the Credit Crisis

Tu Nguyen (), Sandy Suardi and Jing Zhao ()
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Tu Nguyen: University of Otago
Jing Zhao: La Trobe University

Journal of Financial Services Research, 2021, vol. 59, issue 3, No 2, 173-208

Abstract: Abstract We examine whether banks’ interest in the well-being of their workforce, measured by an index of employee relations strengths, explains their default risk during the recent credit crisis. Using a sample of 179 U.S. banks, we find that banks with greater pre-crisis employee relations strengths experience lower default risk and have higher excess returns during the crisis. These banks have lower asset volatility and leverage, suggesting that bank default risk is mitigated through lowering operational and financial risks. Banks’ prudent risk-taking behavior benefits shareholders in times of heightened risk. The results are robust to alternative model specifications and endogeneity issues.

Keywords: Employee relations strengths; Stakeholder governance orientation; Credit crisis; Bank default risk (search for similar items in EconPapers)
JEL-codes: G01 G21 G30 M51 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10693-020-00343-8

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