Employee satisfaction, firm performance and financial distress

Purpose - This study examines the determinants of employee satisfaction as well as the role of employee satisfaction in improving company performance and reducing default risk. Specifically, it explores whether (1) a company’s commitment to employee development, diversity and inclusion, (2) aspects of the company pay policy and (3) aspects of corporate governance influence employee satisfaction. Design/methodology/approach - The analysis was based on an international sample of listed companies for the period 2010–2022. A dynamic model was estimated with the two-step system generalized method of moments estimator that provides consistent results in the presence of different sources of endogeneity. The possible endogeneity of the independent variables was addressed by employing internal instruments. Findings - Opportunities for promotion and professional development were found to be positively valued by employees. However, group diversity was associated with low employee satisfaction. Managers should seek to implement human resource policies that increase employee satisfaction as a way of enhancing business development. Originality/value - Most empirical research on the influence of CSR on decision-making processes ignores the influence of employees on the outcomes of the firm. This study provides empirical evidence of the benefits of investing in employee well-being in terms of improving corporate profitability and reducing the probability of default.