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

Author

Listed:
  • Bill Francis

    () (Rensselaer Polytechnic Institute)

  • Iftekhar Hasan

    () (Fordham University, Bank of Finland and University of Sydney)

  • Liuling Liu

    () (Bowling Green State University)

  • Haizhi Wang

    () (Illinois Institute of Technology
    Zhongnan University of Economics and Law)

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.

Suggested Citation

  • Bill Francis & Iftekhar Hasan & Liuling Liu & Haizhi Wang, 2019. "Employee Treatment and Contracting with Bank Lenders: An Instrumental Approach for Stakeholder Management," Journal of Business Ethics, Springer, vol. 158(4), pages 1029-1046, September.
  • Handle: RePEc:kap:jbuset:v:158:y:2019:i:4:d:10.1007_s10551-017-3722-0
    DOI: 10.1007/s10551-017-3722-0
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