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Employee treatment and firm leverage: A test of the stakeholder theory of capital structure

  • Bae, Kee-Hong
  • Kang, Jun-Koo
  • Wang, Jin
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    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[hyphen (true graphic)]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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    File URL: http://www.sciencedirect.com/science/article/pii/S0304-405X(10)00255-2
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    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 100 (2011)
    Issue (Month): 1 (April)
    Pages: 130-153

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    Handle: RePEc:eee:jfinec:v:100:y:2011:i:1:p:130-153
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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